Diana Clay O'Dell
Legislative Research Analyst
(602) 926-3745
Arizona House of Representatives
House Majority Research
MEMORANDUM
1700 West Washington
Phoemx,~ona85007
F)u((602) 417-3097
To: JOINT LEGISLATIVE AUDIT COMMITTEE
Representative Laura Knaperek, Co-'Chair
Senator Robert Blendu, Co-Chair
RE: SUNSET REVIEW
Industrial Commission of Arizona
Related Advisory 7 Review Boards
Date: December 1, 2005
Attached is the fin.al report of the sunset review of the Industrial Commission and the related
advisory/review boards, which was conducted by the House of Representii:ltives Commerce and
the Senate Commerce and Economic Development Committee of Reference. This report has
been distributed to the following individuals and agencies:
Governor of the State ofArizona
The Honorable JanetNapolitano
President of the Senate
Senator Ken Bennett
Senate Members
Senator Barbara Leff, Co-Chair
Senator Ken Cheuvront
Senator Richard Miranda
Senator Jay Tibshrgeny
Senator Jim Waring
Speaker of the House of Representatives
Representative James P. Weiers
House Members
Representative John McComish, Co-Chair
Representative Bill Konopnicki
Representative Debbie McCune-Davis
Representgtive Robert Meza
Representative Michele Reagan
Arizona Industrial Commission of Arizona and Related Advisory / Review Boards
Office of the Auditor General
Department of Library, Archives &Public Records
Office of the Chief Clerk and Secretary of the Senate
Senate Republican Staff
Senate Research Staff
Senate Democratic Staff
House Majority Staff
House Research Staff
House Democratic Staff
COMMITTEE OF REFERENCE
SUNSET HEARING
House of Representatives Committee on Commerce
Senate Committee on Commerce and Economic Development
INDUSTRIAL COMMISSION OFARIZONA
BOILER ADVISORY BOARD
EMPLOYMENT ADVISORY COUNCIL
OCCUPATIONAL SAFETY AND HEALTH
ADVISORY COMMITTEE
OCCUPATIONAL SAFETY AND HEALTH
REVIEW BOARD
FINAL REPORT
DECEMBER
2005
COMMITTEE OF REFERENCE REPORT
House ofRepresentatives Committee on Commerce and
Senate Committee on Commerce and Economic Development
INDUSTRIAL COMMISSION OF ARIZONA
AND RELATED ADVISORYIREVIEW BOARDS
To: JOINT LEGISLATIVE AUDIT COMMITTEE
Representative Laura Knaperek, Co-Chair
Senator Robert Blendu, Co-Chair
Date: November 9, 2005
Pursuant to Title 41, Chapter 27, Arizona Revised Statutes, the Committee of Reference, after
performing a sunset review and conducting a public hearing, recommends the following:
The Industrial Commission he continuedfor ten years.
The Boiler Advisory Board he continuedfor ten years.
The Employment Advisory Council he continuedfor ten years.
The Occupational Safety and Health Advisory Committee he continuedfor ten years.
The Occupational Safety and Health Review Board he continuedfor ten years.
COMMITTEE OF REFERENCE
~~~O-~hm
Representative Bill onopnicki
./"b~
Senator Barbara Leff, C
Senator Richard Miranda
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COMMITTEE OF REFERENCE
House ofRepresentatives Committee on Commerce and
Senate Committee on Commerce and Economic Development
Industrial Commission of Arizona and the
Industrial Commission Advisor)1Review Boards
Final Report
I. Background
Pursuant to §4l-2953, Arizona Revised Statutes, the Joint Legislative Audit Committee
(JLAC) assigned the sunset review of the Industrial Commission of Arizona (lCA) and its related
advisory/review boards to the House ofRepresentatives Commerce and the Senate Commerce and
Economic Development Committee ofReference. [Attachment A]
II. Committee of Reference Sunset Review Procedure
The Committee ofReference held one public hearing on Wednesday, November 9, 2005, to
review the performance audit of the ICA, the Boiler Advisory Board, the Employment Advisory
Council, the Occupational Safety and Health Advisory Committee, and the Occupational Safety and
Health Review Board and to receive public testimony. [Attachment B]
At the public hearing, the Committee heard testimony from the following:
Larry Etchechury, Director, Industrial Commission of Arizona
Laura McGrory, Chief Counsel, Industrial Commission of Arizona
Diana Clay O'Dell, Research Analyst, House Committee on Commerce
Willie Johnson, Constituent
~ Larry Etchechury, Director, presented information regarding the ICA and its related advisory
boards, including various statutory responsibilities. Mr. Etchechury summarized internal
organization and management issues that have been addressed in order for the agency to function
more effectively in the public interest.
~ Laura McGrory, ICA's General Counsel, answered technical questions.
~ Diana Clay O'Dell, Legislative Staff, provided testimony regarding the Occupational Safety and
Health Review Board, which hears administrative appeals of orders by Administrative Law
Judges at the Arizona Division of Occupational Safety and Health.
~ Willie Johnson, Constituent, testified that his son was killed in an accident while working as a
forklift operator. Mr. Johnson recommended that the family be included in discussions and
hearings involving serious injury or loss oflife. Additionally, Mr. Johnson suggested that the
ICA not reduce fines/penalties when an employer is found to be negligent.
Industrial Commission ofArizona .
The Industrial Commission ofArizona (lCA) was legislatively created in 1925 as a regulatory
agency to implement the constitutional requirement to establish a workers' compensation program
for benefits to be paid in the event ofthe worker's injury or death. The ICA is charged to administer
and enforce all laws for the protection oflife, health, safety and welfare ofemployees. The agency
has evolved and expanded over the years to now include various related programs such as
occupational safety and health, regulation of youth employment, resolution of wage disputes,
vocational rehabilitation, education and training, benefits for claims when the employer is uninsured,
including expanded regulatory authority over such employers. Additionally, the ICA oversees
settlement agreements and authorizes self-insurance of individuals as well as groups of employers,
bankruptcy cases and issues involving the proceedings when insurance carriers or self-insureds
become financially insolvent.
The five-member Commission is the policy-setting body appointed by the Governor, and
confirmed by the Senate. The agency director oversees the daily operations, which include
approximately 300 employees within the following divisions: Legal Division; Administration
Division; Claims Division; Administrative LawJudge Division; Division ofOccupational Safety and
Health, Labor Division, and the Special Fund Division. The ICA has an operating budget of$17.7
million, based on a three percent annual tax levied against premiums paid to insurers and premium
equivalents ofself-insurers. The Special Fund consists ofapproximately $280 million, but has gone
from an $80 million surplus in 2001, to a current $190 million deficit because of 16 insurance
carriers that became insolvent. The ICA and the Department ofInsurance are working to rectify the
situation, but the issue of insolvencies is on-going. The Special Fund shares the responsibility for
certain awards when there is a loss of earning capacity, provides vocational rehabilitation benefits
and continuing medical benefits for pre-1973 workers' compensation claims.
Boiler Advisory Board
Title 23, Section 474, Arizona Revised Statutes, requires the Commission to establish a
Boiler Advisory Board to assist the ICA in drafting standards and regulations. The Board serves in
an advisory capacity and is comprised of industry personnel, owners/operators, labor and public
members who are knowledgeable in the industry. The current seven-member Board meets at least
annually in an open public forum.
Employment Advisory Council
The Employment Advisory Council consists of seven members representative of the
executive, managerial, commerce and Arizona industry who are appointed by the Industrial
Commission to serve three-year terms. Title 23, Section 522.02 directs the Council to inquire into
the needs ofthe employment agency industry and make such recommendations as necessary for the
public health, welfare and progress of the state and industry. Other duties include conferring with
the ICA, advising them on employment agency related issues and making recommendations
regarding licensure, legislative and rulemaking issues.
Final Report
Page 2
Occupational Safety and Health Advisory Committee
Title 23, Section 409, Arizona Revised Statutes, directs the Commission to create the
Occupational Safety and Health Advisory Committee to assist the commission in drafting standards
and regulations. Further, the Advisory Committee must recommend names for consideration by the
governor to serve as members ofthe Occupational Safety and Health Review Board. The Advisory
Committee is appointed by the Commission and composed ofa reasonably balanced representation
of regulated industries, including agriculture, labor and others knowledgeable in safety and health.
Members meet quarterly, and are paid their reasonable and necessary standard travel/other expenses.
Occupational Safety and Health Review Board
The purpose of the Occupational Safety and Health Review Board is to hear and decide
administrative appeals of orders of the Industrial Commission's Arizona Division ofOccupational
Safety and Health. The Review Board's charge is to hear and rule on appeals ofAdministrative Law
Judge (ALJ) decisions, and may remand the case to the ALJ for further evidence, correction or
action, affirm, reverse, modify or supplement the decision as it deems appropriate. This federally­approved
forum provides a final appeal step in the administrative law process before filing with the
Arizona Court of Appeals.
The 2005 fiscal year General Fund appropriation of $4,800 provides for the services of a
contract attorney to assist the Review Board. The Review Board consists offive members appointed
by the governor to five-year terms. The Occupational Safety and Health Advisory Committee must
submit the names of qualified persons to the governor.
During the five-year periodic review of administrative rules, the Governor's Regulatory
Review Council informed the Review Board that it does not have the statutory authority to adopt
rules; therefore, the Review Board will seek that specific authority through future ICA legislation.
III. Committee Recommendations
The Committee ofReference recommends the following:
• The Industrial Commission of Arizona be continued for ten years.
The Boiler Advisory Board be continued for ten years.
• The Employment Advisory Council be continued for ten years.
• The Occupational Safety and Health Advisory Committee be continued for ten years.
• The Occupational Safety and Health Reviw Board be continued for ten years.
IV. Statutory Report Pursuant to Section 41-2954, Arizona Revised Statutes
[Attachment C]
V. Attachments
A. Meeting Notice
B. Minutes of Committee of Reference Hearing
C. Agency Reports
Final Report
Page 3
Attachment A
Interim agendas can be obtained via the Internet at http://www.azleg.state.az.us/lnterimCommittees.asp
ARIZONA STATE LEGISLATURE
INTERIM MEETING NOTICE
OPEN TO THE PUBLIC
SENATE COMMERCE AND ECONOMIC DEVELOPMENT AND HOUSE OF
REPRESENTATIVES COMMERCE COMMITTEE OF REFERENCE
FOR THE SUNSET REVIEW OF:
INDUSTRIAL COMMISSION OF ARIZONA,
BOILER ADVISORY BOARD
EMPLOYMENT ADVISORY COUNCIL
OCCUPATIONAL SAFETY AND HEALTH ADVISORY COMMITTEE
OCCUPATIONAL SAFETY AND HEALTH REVIEW BOARD
ARIZONA STATE BOARD OF TECHNICAL REGISTRATION
ARIZONA POWER AUTHORITY
Date:
Time:
Place:
Wednesday, November 9, 2005
8:30 a.m.
House Hearing Room 3
AGENDA
1. Call to Order
2. Opening Remarks
3. Presentation of Performance Audits:
Larry Etchechury, Executive Director, Industrial Commission of Arizona
• Industrial Commission of Arizona
• Boiler Advisory Board
• Employment Advisory Council
• Occupational Safety and Health Advisory Committee
Diana Clay O'Dell, Research Analyst, House Committee on Commerce
• Occupational Safety and Health Review Board
4. Public Testimony
5. Discussion
6. Recommendations by the Committee of Reference
7. Presentation of Performance Audit
Ronald W. Dalrymple, Executive Director, Board of Technical Registration
• Arizona State Board of Technical Registration
8. Public Testimony
9. Discussion
10. Recommendations by the Committee of Reference
11. Presentation of Performance Audit
Joseph W. Mulholland, Executive Director, Arizona Power Authority
• Arizona Power Authority
12. Public Testimony
13. Discussion
14. Recommendations by the Committee of Reference
15. Adjourn
Members:
Senator Barbara Left, Co-Chair
Senator Ken Cheuvront
Senator Richard Miranda
Senator Jay Tibshraeny
Senator Jim Waring
10/24/05
jmb
Representative John McComish, Co-Chair
Representative Bill Konopnicki
Representative Debbie McCune Davis
Representative Robert Meza
Representative Michele Reagan
People with disabilities may request reasonable accommodations such as interpreters, alternative
formats, or assistance with physical accessibility. If you require accommodations, please contact the
Chief Clerk's Office at (602) 926-3032, TOO (602) 926-3241.
Attachment B
ARIZONA STATE LEGISLATURE
Forty-seventh Legislature - First Regular Session
SENATE COMMERCE AND ECONOMIC DEVELOPMENT AND HOUSE OF
REPRESENTATIVES COMMERCE COMMITTEE OF REFERENCE
FOR THE SUNSET REVIEW OF
INDUSTRIAL COMMISSION OF ARIZONA
BOILER ADVISORY BOARD
EMPLOYMENT ADVISORY COUNCIL
OCCUPATIONAL SAFETY AND HEALTH ADVISORY COMMITTEE
OCCUPATIONAL SAFETY AND HEALTH REVIEW BOARD
ARIZONA STATE BOARD OF TECHNICAL REGISTRATION
ARIZONA POWER AUTHORITY
Minutes of Meeting
Wednesday, November 9, 2005
House Hearing Room 3 -- 8:30 a.m.
Chairman McComish called the meeting to order at 8:40 a.m. and roll call was taken by the
secretary.
Members Present
Senator Cheuvront
Senator Tibshraeny
Senator Waring
Senator Leff, Cochair
Senator Miranda
Members Absent
Speakers Present
Representative Konopnicki
Representative McCune Davis
Representative Meza
Representative Reagan
Representative McComish, Cochair
Larry Etchechury, Director, Industrial Commission of Arizona
Laura McGrory, Chief Counsel, Industrial Commission of Arizona
Diana Clay O'Dell, House Majority Research Analyst, Commerce Committee
Willie Johnson, representing self
Ronald Dalrymple, Executive Director, Arizona State Board of Technical Registration
Canan D'Avela, representing self
Joseph Mulholland, Executive Director, Arizona Power Authority
SENATE COMMERCE AND ECONOMIC DEVELOPMENT
AND HOUSE OF REPRESENTATIVES COMMERCE
COMMITTEE OF REFERENCE FOR THE SUNSET REVIEW
OF THE INDUSTRIAL COMMISSION OF ARIZONA, ETC.
November 9,2005
Industrial Commission of Arizona
Larry Etchechury, Director, Industrial Commission of Arizona (lCA), said he believes the ICA is
efficient and effective in fulfilling its statutory responsibilities. The ICA was established in 1925
to implement the constitutional provisions creating the worker's compensation system in
Arizona. The duties of the agency have been expanded over time to include occupational safety
and health issues, regulation of child labor, resolution of wage disputes, vocational rehabilitation
for injured workers, and other activities. The ICA has 313 employees, an operating budget of
approximately $17.7 million, and is funded by a three percent tax on worker's compensation
premiums. The policy-setting body is a five-member commission appointed by the Governor
and confirmed by the Senate. The members serve five-year staggered terms.
Mr. Etchechury related that the agency has four major focuses, three of which are regulatory in
nature, and the fourth is almost an insurance function. He reviewed the responsibilities of the
Claims Division and the Administrative Law Judge (ALJ) Division, noting that the average time
to adjudicate a case in 2005 was 118 days. There is a significant amount of concern that the time
frame should be less. Trying to accommodate the schedules of physicians, in particular, to make
live testimony is extremely difficult, and in some cases, may not be necessary, so the agency is
working with the attorney community about being more selective as to when and where a
doctor's testimony is needed as opposed to written reports. He provided an overview of the
Arizona Division of Occupational Safety and Health (ADOSH), which involves the Compliance
Program, the Consultation/Training Program and the Boiler and Elevator Programs (Evaluation
Report from the U.S. Department of Labor from October 1, 2003 through September 30, 2004,
Attachment 1).
He related that the Commission has an Occupational Safety and Health Advisory Committee, an
Elevator Advisory Board, a Boiler Advisory Board, and an Employment Advisory Committee,
which are typically composed of industry representatives, both labor and management, to assist
in adopting standards. The Occupational Safety and Health Advisory Committee is appointed by
the ICA, and in addition to assisting in adoption of standards, provides input to the Governor's
Office for appointments to the Occupational Safety and Health Administration (OSHA) Review
Board. The Committee can also be used in other areas. For example, several years ago, fatalities
occurred involving excavations, so the Occupational Safety and Health Advisory Committee
helped develop a comprehensive program that eradicated fatalities for about a five-year period.
Mr. Etchechury reviewed the responsibilities of the Labor Department in relation to wage
disputes, youth employment laws, licensing of employee paid employment agencies, and the
Employment Advisory Council whose members are appointed by the ICA for three-year terms.
The Employment Advisory Council reviews new or existing licensees and advises the ICA on
matters involving employment agencies. A number of years ago a request was made to the
Legislature to delete this function from the ICA's jurisdiction, but the industry testified as to the
benefits of the Council as a regulated element. In reviewing jurisdictions in other states, much
fraud was found, particularly in career counseling and some employment agencies, so the
Legislature decided to retain the Council as part of the jurisdiction of the ICA, which has
prevented fraud from occurring in Arizona.
SENATE COMMERCE AND ECONOMIC DEVELOPMENT
AND HOUSE OF REPRESENTATIVES COMMERCE
COMMITTEE OF REFERENCE FOR THE SUNSET REVIEW
OF THE INDUSTRIAL COMMISSION OF ARIZONA, ETC.
2 November 9,2005
Mr. Etchechury said the fifth function is the Special Fund, which consists of about $280 million,
to provide insurance for uninsured claimants and continue worker's compensation benefits for
claimants of insolvent carriers and insolvent self-insured employers. In 2001, the Special Fund
had an $80 million surplus, but now there is a $190 million deficit because about 16 insurance
companies became insolvent from 2001 to 2005. Last year, the Legislature provided the
authority to revert excess monies from the Administrative Fund to the Special Fund at the end of
the year, which provided a cushion to meet annualized expenses; however, it is not known how
much insolvency may occur in the future. He noted that the Arizona Department of Insurance
(DOl) has deposits on file for insurance carriers regarding liabilities, but those deposits are not
sufficient; however, if the deposits were not on file, as in most states, the deficit would be much
larger. The ICA is working with DOl on that issue. He added that the Special Fund also shares
the responsibility with insurance carriers or self-insured employers for a portion of liabilities for
certain loss of earning capacity awards, provides vocational rehabilitation benefits, and provides
continuing medical benefits for pre-1973 worker's compensation claims. (For more details see
Attachment 2).
He advised Senator Leff that the Special Fund is funded by a 2.5 percent assessment against
employers, which is the maximum amount and became effective in 2004. He indicated that he
does not desire to increase the assessment.
Mrs. McCune Davis asked if the insolvencies are a backlash to what happened in California.
Mr. Etchechury responded that a few elements took place. In the early 1990s, everyone
recognized that all kinds of money could be made in the market. Insurance carriers marketed to
get business and let down some protections. Suddenly, the market began tightening up and
reversals started to take place. At that point, people were in the system that were at much larger
risk and not paying those risks. For example, Reliance Insurance Company reported three
quarters of a billion dollar loss in the third quarter of operations, and at the same time, asked DOl
for a deviation from the insurance rates.
He advised Senator Leff that the penalty for a company that does not carry workmen's
compensation insurance ranges from $1,000 to $10,000, and depending upon the repetitiveness,
the ICA can go to Superior Court and obtain an injunction to keep the company from operating.
Collecting the money is difficult because many times companies declare bankruptcy and go
through the federal bankruptcy process, which is extremely difficult and onerous. The collection
rate is about 20 percent. If the ICA finds that a company declared bankruptcy and has not paid
the penalty, the injunctive process is used whereby a superior court judge rules that the company
cannot operate or the owner will be sent to jail. Unfortunately, some companies are probably
still in operation that the ICA is not aware of because when bankruptcy is declared, the owner
can change the name of the company and start again.
When Mr. Konopnicki asked for further details about the increase in insolvencies,
Mr. Etchechury related that from 1970 to 2001 the Special Fund had about 350 open claims.
From 2001 to the present there are in excess of 1,200 open claims. When an insurance carrier
obtains a license, financial reports are filed with DOl, and based on those reports, a deposit is
made with DOl that is supposed to be sufficient to cover potential liabilities. In reality, the
deposits were not adequate by about 50 percent.
SENATE COMMERCE AND ECONOMIC DEVELOPMENT
AND HOUSE OF REPRESENTATIVES COMMERCE
COMMITTEE OF REFERENCE FOR THE SUNSET REVIEW
OF THE INDUSTRIAL COMMISSION OF ARIZONA, ETC.
3 November 9,2005
Mr. Etchechury explained that as an example, the domicile insurance carrier in California knew
the Freemont Insurance Company was in trouble long before bankruptcy was declared, so the
company was under a restitution process to resolve problems. In the process, their companies
were consolidated into one company, and DOl had deposits for each of the companies. The
domiciliary said any assets associated with the companies must be given to the domiciliary for
that one company. DOl must have good reason to keep the deposits and did not because the
outcome is not known, so the domiciliary can legally do that. The ICA then calculated what the
deposit would be for the one company, which, in reality, would be the same, but in this particular
case, it was not, so there was a major hit to the Special Fund. Other elements were also
involved, but he was told that DOl did everything possible to sustain the deposits.
Mr. Konopnicki said he would like the name of the person involved from DOL
Laura McGrory, Chief Counsel, Industrial. Commission of Arizona, agreed that carriers are
required to make a deposit with DOL Carriers file an annual financial statement with DOl on an
annual basis and fill out a form regarding prior losses, premiums written, and reinsurance credits.
There is a present value discount, but the formula calculates a number that becomes the statutory
deposit. The statute says what is required to be posted, so if the number is lower according to the
formula, DOl may be required to return some deposit money to align with the formula. In the
Freeman scenario, a merger occurred and the companies, which mayor may not have been in
conjunction with the domiciliary because they were in some type of receivership, indicated to
DOl that they came up with a lower number so DOl was holding excess deposit money that
should be returned. An enormous amount of dialogue went on between DOl and California, but
ultimately, the deposit money was returned. There were some difficulties afterward with the
nature of the security DOl accepted, which essentially declined in value. It was some type of
Fannie Mae mortgage-based security, so the Special Fund is left with a deficiency as the
liabilities are higher than the deposit.
Senator Leff submitted that the deposit then is meaningless. Ms. McGrory answered that when
an insurance company sees the writing on the wall, an attempt is made to marshal assets in order
to have as much money as possible to facilitate the process of drawing things down, so DOl
frequently receives requests for release of deposit money. When DOl knows a company is in
trouble, everything possible is done to hold on to the money. There is a current situation in
which an insurance carrier is headed for insolvency and the carrier and domiciliary are asking for
money to help the company. DOl has worked hard to retain the deposit by having an actuarial
analysis to justify the numbers. Because of what happened in the past, more dialogue goes on
between DOl and the ICA. DOl no longer releases deposit money without asking the ICA if
there is a problem.
Senator Leff then questioned the purpose of the deposit. Ms. McGrory agreed that is a concern,
noting that the ICA is reviewing ways to strengthen the ability to keep deposit money or increase
the deposits. Multiple things are occurring with credits for reinsurance and a present value
discount of six percent, so elements are decreasing the deposit.
SENATE COMMERCE AND ECONOMIC DEVELOPMENT
AND HOUSE OF REPRESENTATIVES COMMERCE
COMMITTEE OF REFERENCE FOR THE SUNSET REVIEW
OF THE INDUSTRIAL COMMISSION OF ARIZONA, ETC.
4 November 9, 2005
Senator Leff asked if credit for reinsurance goes away since the money is supposed to be there to
reinsure the money. Ms. McGrory replied that the benefits of reinsurance are not necessarily
realized when a carrier goes into liquidation because reinsurance deposits are considered an asset
of the estate. Although the deposit decreases because of the credit for reinsurance, the liquidator
marshals the reinsurance proceeds, and to the extent the proceeds are recovered, a pro-rata
distribution is made amongst creditors, so there is not a dollar-for-dollar benefit from the
reinsurance posting.
Senator Leff noted that good employers are paying the maximum 2.5 percent assessment, partly
because of this and wondered why the employer community is not upset about what the
reinsurance community is doing. Mr. Etchechury responded that the ICA supported legislation
dealing with different elements, but even though the employer community was aware, there was
no involvement on their part.
Mr. Konopnicki said as an employer in Arizona he did not know about the situation, which is a
major problem. He recommended referring the matter to the Attorney General. Mr. Etchechury
indicated that employer representative organizations, such as the Chamber of Commerce, the
National Federation ofIndependent Business and others, were made aware, but he does not know
what was done with the information. He submitted that it is easy to say all that has to be done is
change the formula and make sure deposits are adequate; however, if that were done right now,
there may be insurance companies on the brink of disaster, so asking for an increase in deposits
by 50 percent could potentially create additional insolvencies.
Senator Leff suggested retaining the amount rather than increasing the deposit. Mr. Etchechury
responded that would not entirely solve the problem. What happened with the Freemont
Insurance Company is one particular situation, but there are other companies like Reliance
Insurance Company where the deposit was inadequate. Multiple issues created the problem,
such as large deductibles. For example, an employer may want a large deductible policy for
$1 million and the premium is calculated accordingly. When the deposit is calculated, the
$1 million is not considered in terms of liability, which would be counted beyond the $1 million.
Therefore, when the whole house of cards goes down there is the potential not only for liability
of the insurance, but also, the large deductible employer. An entity has been created that is not
even addressed in statute. A number of large deductible employers currently not identified are
acting as self-insured employers with no oversight whatsoever in terms of processing claims,
which was created with the insolvency debacle. He said the agency is becoming involved in
insurance law when it previously was not.
Mrs. McCune Davis asked if DOl and the ICA are notified when a company is going into
receivership and questioned if tools are in place to freeze deposits. She wondered if action is
being taken or legislation is needed to protect existing assets. Mr. Etchechury replied that
legislation was introduced to codify insolvency processes at DOl that were normally accepted,
but were challenged by others not necessarily involved in the process. That has helped, but there
is more to be done. The agency is working closely with DOl to address some issues, but it is
very complex.
SENATE COMMERCE AND ECONOMIC DEVELOPMENT
AND HOUSE OF REPRESENTATIVES COMMERCE
COMMITTEE OF REFERENCE FOR THE SUNSET REVIEW
OF THE INDUSTRIAL COMMISSION OF ARIZONA, ETC.
5 November 9,2005
Senator Leff remarked that she understands the deficit is over the lifetime payment and
wondered if the fund can be brought back into balance. Mr. Etchechury said he hopes so,
without affecting the principle in terms of existing investments. ICA is able to meet annualized
expenditures. In the long term, he hopes to resolve the issue so this does not reoccur, but the
number of potential insolvencies is not known.
Senator Leff commented that is why it was so important to some legislators not to privatize the
State Compensation Fund, which probably would have been severely diminished.
Mr. Etchechury acknowledged that the State Compensation Fund is a key element of the
worker's compensation system.
Mr. Konopnicki contended that major problems exist, not of the ICA's making, but due to
legislation and DOL It is the responsibility of the Committee to offer legislation to solve these
problems, but he is hesitant to recommend a lO-year extension of the agency. Senator Leff
submitted that legislation should be introduced to address the problems, but there is no reason
not to extend the agency for 10 years.
Mr. Etchechury related to Chairman McComish that funding from the three percent tax paid by
employers is adequate. Currently, 2.5 percent is used to fund the agency and the additional one­half
percent is administrative money that goes into the Special Fund to meet annualized
expenditures. If the Special Fund becomes fiscally sound, the rate can only be sufficient to fund
the agency, so it is a floating rate on the administrative side, and any extra goes into the Special
Fund.
Chairman McComish asked if employer paid agencies are licensed. Mr. Etchechury replied that
those were taken out of the statute several years ago and are no longer licensed. There have not
been any problems associated with employer paid agencies because the market dictates;
therefore, he does not believe regulation is necessary.
Mrs. McCune Davis noted that fines charged to employers as the result of accidents that occur in
the workplace go into the General Fund and questioned if adequate money is available for safety
programs or some of that money should be directed for that purpose. Mr. Etchechury responded
that the question arises periodically in the Legislature. The money could be used to enhance
safety and health programs, but it is up to the Legislature. There have been some efforts,
including providing bilingual health and safety training programs.
Diana Clay O'Dell, House Majority Research Analyst, Commerce Committee, advised that the
purpose of the OSHA Review Board is to hear administrative appeals regarding orders of the
Industrial Commission's Arizona Division of Occupational Safety and Health (ADOSH). This
forum provides a final appeals step in the administrative law process before filing with the Court
of Appeals. The OSHA Review Board consists of five members appointed by the Governor to
five-year terms. Current law mandates one representative of management, one of labor and three
public members. The OSHA Review Board operates with only a contract employee who is an
attorney. Following discussions with the Governor's Regulatory Review Council (GRRC) prior
to the OSHA Review Board's routine five-year rule-making process, the OSHA Review Board
discovered that it does not have the statutory rule-making authority necessary to adopt rules;
SENATE COMMERCE AND ECONOMIC DEVELOPMENT
AND HOUSE OF REPRESENTATIVES COMMERCE
COMMITTEE OF REFERENCE FOR THE SUNSET REVIEW
OF THE INDUSTRIAL COMMISSION OF ARIZONA, ETC.
6 November 9,2005
therefore, the rule-making authority will be sought through future rCA legislation. The OSHA
Review Board historically meets every quarter; however, since more cases are now mediated
before going to a formal hearing, only one meeting was held in the past two years. A meeting
will be held on November 30, 2005.
Chairman McComish related that Lisa Gervase, the contract attorney for the OSHA Review
Board, could not attend the meeting (for more details about the OSHA Review Board, see Letter
from Ms. Gervase, Attachment 3).
Senator Leff questioned why the Board has separate review authority. Ms. O'Dell responded
that ALJs under the authority of the rCA make the initial decision, so these are appeals to a
separate independent review board to avoid a conflict of interest.
Senator Leff stated that in working with the Registrar of Contractors a constituent was heard by a
second judge for an appeal, not an ALJ. Mr. Etchechury replied that the OSHA Review Board
was created to mirror the appeals process at the federal level through an OSHA Review Board
that is totally separate from the U.S. Department of Labor. During creation of the OSHA
Review Board on a local level, the Legislature and Governor's Office wanted a mechanism
whereby an employer could go before a lay board without incurring the expense of hiring an
attorney. An rCA ALJ makes the initial determination, which can be appealed to the OSHA
Review Board, then the Court of Appeals and Supreme Court. He understands the Registrar of
Contractors uses the hearing division set up by the Legislature as part of the appeals mechanism,
but he is not sure if the Registrar of Contractors can overrule that decision.
Senator Leff said the Registrar of Contractors can overrule the decision, so the constituent went
back for another hearing. Mr. Etchechury indicated that the rCA does not have that. The appeals
process should be separate from the rCA because a determination is already made at a divisional
level in terms of ADOSH and an ALJ, so this is a separate appeals process that should be
separate.
Chairman McComish said it sounds like rCA does a good job providing mediation, so perhaps
there is less need for the OSHA Review Board today then when it was created. Mr. Etchechury
responded that is possible as the number of cases heard is minimal, i.e., one case in the last two
years and one case is currently pending. The Review Board is funded from a non-reverting
General Fund account. This means there is a certain amount of funding, but no appropriation for
the next two years, so expenditures for the contract attorney will only be with respect to that one
case and will not be monumental. He indicated to Senator Leff that he believes the
OSHA Review Board should be continued.
Ms. O'Dell advised Senator Leff that the procedural rule in place related to what needs to be
done to file paperwork. When the agency was told there is no specific statutory authority for
rule-making, the decision was made to allow the procedure to repeal, seek statutory authority,
and reinstate the rule.
Willie Johnson, representing self, testified that his son, Daryl Wayne Johnson, was killed on
October 28,2003 while working in the warehouse at Accurate Cargo Delivery when the forklift
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he was operating fell on top of him crushing his chest. While Mr. Johnson was in the emergency
room of St. Joseph's Hospital, no one from the company arrived to console the family or check
on his son's condition. During the field investigation that same day by the investigator from
OSHA, the owner was only concerned about the possibility of being sued. The OSHA
investigator interviewed a few employees, one of which indicated that the owner brags about
making $250,000 per year, but cannot provide safety training for employees.
Mr. Johnson stated that another accident involving a forklift occurred on January 2002 that was
not reported to OSHA, but the individual involved wrote a sworn document to OSHA concerning
the incident. The individual indicated that no forklift training was ever provided and his
supervisor told him to drive the forklift faster. About an hour after the incident occurred, the
owner and general manager showed up and asked the individual if he was okay. The individual
said he was, so the owner and general manager left, but the individual was not told to go to the
emergency room to be checked. The person stated in the report that the company does not
believe in safety, hires young inexperienced warehouse men, and pays the workers a low salary.
Mr. Johnson stated that while going through the procedure with OSHA and State Compensation,
he tried to obtain a professional opinion on how to hold the owner accountable. He was advised
by counsel that the ICA covers that and there is nothing that can be done. Many employees who
worked for the company told him the company does not care about employee safety. He gave
the information to OSHA, and as time went on, found that several violations were issued to the
company totaling $35,000. He personally thought some incidents should have been willful, but
OSHA did not. The penalty was eventually reduced to $21,000 because the company agreed to
pay, but he does not know if the penalty was paid. He recommended that any time a hearing is
held to negotiate a settlement offer or plea agreement for a company that is negligent resulting in
a serious injury or loss of life, the family should be allowed to attend hearings and voice opinions
instead of being shut out. He would also like to see the procedures changed so fines are levied
without reductions.
Mrs. McCune Davis conveyed that she asked Mr. Johnson to testify. She expressed concern that
sometimes it is more expeditious for employers not to follow safety rules, and unless fines are at
an appropriate rate, some employers would rather pay the fines and not follow safety rules. This
young man with a promising future is the reason the rules were implemented. She added that she
attended a press conference the day before on the west side about two young men killed at a
Subway facility. The employer was present and paid for the funerals, which is quite a contrast.
Senator Leff asked if a company can be shut down or something for negligence as opposed to a
monetary penalty. Mr. Etchechury replied that in this particular case, an investigator looked at
every allegation that was made and found serious violations. For willful or repeat violations
where it appears there are egregious elements, cases can be referred to the Attorney General's
Office for prosecution.
Senator Leff noted that someone was harmed at Accurate Cargo Delivery in a similar accident
and wondered why that was not considered. Mr. Etchechury said in that incident the forklift
operator was backing out of a semi onto the loading dock. The driver of the semi did not realize
someone was in the truck and drove away from the dock, so the forklift fell off the truck down
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below the dock. The circumstances were different. Violations were found and the employer did
not have an effective safety and health program or the citations would not have been issued.
There is typically a 25 percent reduction in the penalty to expedite the settlement process and
close the citation. He pointed out that Arizona statute allows a $25,000 penalty to be paid by the
employer to the family (widow and any individuals solely dependent upon the person injured),
which the Committee may want to extend or expand to cover serious violations.
Mr. Etchechury indicated to Senator Waring that a willful violation occurred in Yuma where
individuals were prosecuted. Employees were entering a sewer system. The company had been
instructed on provisions to follow to make sure the air was clean and breathable, but did not
follow-up, and two individuals died. The case was referred to the Attorney General's Office
where criminal negligence was found on the part of the employer. In another situation, a student
attending the University of Arizona on a wrestling scholarship was working for the summer for a
contractor on an excavation. An Arizona Public Service employee working in an adjacent area
told the foreman that people cannot go into the cut without adequate protection and shoring in
place. "The contractor continued to work and the excavation caved in killing the individual. That
was considered a willful violation so there was a criminal indictment. He clarified that if there is
a follow-up investigation and the safety rules were ignored by supervision, even though no injury
occurred, it would be considered a willful violation and a fine of $70,000 would be assessed.
Ms. Reagan asked if there is some type of follow-up on violations. Mr. Etchechury responded
that every serious violation is followed up through periodic visits, which is required by statute.
Prosecution" of cases only occurs for willful and repeat violations, not serious violations, which
could be included.
He advised Senator Leff that violations were issued to Accurate Cargo Delivery because of lack
of safety training, speeding and no supervision on the part of the employer to prohibit speeding,
propane canisters on the vehicle were not adequately secured, and the seat belt issue.
Senator Leff moved that the Committee of Reference recommend to the
Legislature that the Industrial Commission be continued for 10 years. The
motion carried by a roll call vote of 9-0-0-1 (Attachment 4).
Senator Leff moved that the Committee of Reference recommend to the
Legislature that the Boiler Advisory Board be continued for 10 years. The
motion carried by a roll call vote of 9-0-0-1 (Attachment 5).
Senator Leff moved that the Committee of Reference recommend to the
Legislature that the Employment Advisory Council be continued for
10 years. The motion carried by a roll call vote of 9-0-0-1 (Attachment 6).
Senator Leff moved that the Committee of Reference recommend to the
Legislature that the Occupational Safety and Health Advisory Committee be
continued for 10 years. The motion carried by a roll call vote of 9-0-0-1
(Attachment 7).
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Senator Leff moved that the Committee of Reference recommend to the
Legislature. that the Occupational Safety and Health Review Board be
continued for 10 years. The motion carried by a roll call vote of 9-0-0-1
(Attachment 8).
Arizona State Board of Technical Registration
Ronald Dalrymple, Executive Director, Arizona State Board of Technical Registration, said the
Board regulates nine different practices. As of this week, there are 21,895 licensees ranging
from engineers (60 percent of the registered population), architects (23 percent), land surveyors
(8 percent), landscape architects (2 percent), geologists (3 percent), home inspectors (4 percent),
certified drug laboratory site remediation supervisors and workers (1.2 percent) and assayers
(1/10 of 1 percent) (For more details, see Attachments 9 and 10).
He informed the Members that the Arizona Department of Environmental Quality (ADEQ)
recently repealed the rule covering the Certified Remediation Specialist Program that was
developed in 2001 by ADEQ as part of the Greenfields Program, which created a new category
of registration for certified remediation specialists. Ten people are in the program and the rule
goes into effect in 2008, so perhaps the Legislature should consider modifying the Board's
statutes to eliminate regulation of certified remediation specialists. He indicated to Senator Leff
that he agrees with ADEQ. It is an ADEQ program, and apparently, during the four years of
existence there has not been a project where a certified remediation specialist was used.
Mr. Dalrymple reported that there are 32 registered assayers in the state and Arizona is the only
state that regulates the profession. The assayer examination needs to be revised, which would
probably cost about $30,000. Every time a sunset occurs by the Auditor General's Office, the
question arises as to whether the agency should continue to regulate assayers. He predicted some
problems if the regulation continues because the agency is trying to develop programs that are
self-sufficient, since there is such a diverse group of professions, so if one is taken out of the
loop there is no negative impact on the agency or others. He advised Senator Leff that assayers
were originally regulated primarily because of mining activity in Arizona.
Referring to Page 6 of the handout (Attachment 9), Chairman McComish noted that the number
of days for complaint resolution increased in the last few years. Mr. Dalrymple responded that
investigators make between $28,000 and $30,000 per year, and in the main investigative body
there are five investigators, including the manager. The agency generally ends up hiring
younger, less experienced investigators or older retired police officers or other individuals. After
receiving training and having two or three years of experience, the younger people leave for
larger agencies with more money in the budget for investigative salaries. The more experienced
investigators move after a short period of time to the Arizona Department of Corrections, the
Department of Racing, etc., since many are former police officers and find the work dull. The
only investigator with a lot of experience is the manager with 15 years, and the next is three
years. Because of training time to bring new investigators up to speed, the work falls behind.
Mr. Dalrymple indicated to Chairman McComish that he would like more money for
investigators so employees can be retained. The number of investigators is sufficient and the
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workload can be handled once the investigators get up to speed. Investigations take about
25 hours, but two investigators are currently being trained by the investigation supervisor.
Mr. Dalrymple advised Senator Leff that the Board is a 90-10 agency and self-supporting.
Sufficient money is provided from fees, but the Legislature is keeping more than 10 percent,
which happens with many 90-10 agencies. He advised Chairman McComish that the Board has
19 authorized FTEs and 18 are filled, but one is being interviewed this week. Turnover in the
agency is 34 percent. He clarified that the 10 certified remediation specialists are licensed
engineers, geologists or chemists, so those individuals would continue their present jobs and
would not be impacted by eliminating the regulation.
Canan D'Avela, representing self, revealed that he is one of the few registered assayers in the
state. Virtually everything assayers do is behind the scenes, but the work generally involves
things upon which some operations in the U.S. are based. For example, in a recent request for an
investigation, he coordinated with the U.S. Mint Headquarters Office and Fort Knox Office on
certain information that needed to be confirmed or denied. He does work nationally and
internationally on the basis of metals, commodities, precious metals and other materials not
normally heard about, some that are somewhat exotic and used by the National Aeronautics and
Space Administration. Assayers are basically analytical chemists who test ores and minerals to
determine the value and composition.
He related to Senator Leff that because Arizona is the only state that regulates the field, other
states, national organizations and international companies ask assayers in the state for
assumptions. If the regulation is removed, the basis of those standards would be eliminated. He
advised that assayers write the examination, which is sent to a psychometrician who specializes
in psychology examination writing to make sure the format is acceptable to the standards for test
procedures.
1.1r. Dalrymple related that much study was done on licensure examinations in the past 15 years.
Psychometric standards were adopted for examinations because if someone fails and is denied a
license, it may be necessary to defend the failure of that person. It costs about $20,000 to
$30,000 to write an examination. The assayer examination has not been reviewed since 2000, so
it is time for a review. Information may change depending on developments in the field. For
example, Mr. D'Avela said assayers are analytical chemists, so the examination may need to be
expanded to encompass chemical analyst activities. The purpose of reviewing examinations is to
ensure that the examination is current, asks the right questions, and whether it is the proper basis
for denying or granting someone a license to practice. The agency has never been sued and is
trying hard not to be sued. The problem is that only one assayer has been licensed in the last five
years.
Chairman McComish pointed out the statement on Page 8 of the handout (Attachment 9) that
certification of assayers would be a more appropriate level of regulation than the current
registration program. Mr. Dalrymple responded that in many cases, certification programs are
developed where there is no examination, but instead, education, prior experience and personal
references are taken into consideration. It is not given quite the same weight as a license, but it
is a method for a state to restrict people who can practice in a field to those who meet certain
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criteria. The practice is similar to how professional societies certify members and it is a lesser
form of regulation. He indicated to Senator Leff that some national companies may come to
Arizona to use a licensed assayer, but there is probably much activity in other states where
assayers do the work without a license.
(Letters in favor of continuation of the agency from the National Association of State Boards of
Geology [Attachment 10], American Society of Home Inspectors [Attachment 11], Arizona
Home Inspectors Coalition [Attachment 12], and the Chairperson of the Home Inspector Rules
and Standards Committee for the State Board of Technical Registration [Attachment 13]).
Senator Leff moved that the Committee of Reference recommend to the
Legislature that the State Board of Technical Registration be continued for
10 years. The motion carried by a roll call vote of 8-0-0-2 (Attachment 14).
Arizona Power Authority
Joseph Mulholland, Executive Director, Arizona Power Authority, gave a slide presentation
explaining that the Authority was established by the Legislature in 1944 to acquire and market
Hoover power and other renewable resources on behalf of the state. Five commissioners are
appointed by the Governor to serve six-year non-concurrent terms, and those individuals have
extensive experience in Arizona power, water and agricultural issues. The Authority purchases
377,000 kilowatts of power and approximately 1 billion kilowatt hours of energy generated at
Hoover Dam under contracts with the federal government that terminate in 2017, and purchases
transmission service from the federal government to bring power from Hoover Dam to load
centers, primarily in the Phoenix area.
He stated that Hoover generators were overhauled and uprated in 1987. The Authority paid its
share of the uprating with $90 million in revenue bonds that extend through 2017. There is
$55 million outstanding with an average interest rate of 3.5 percent. In addition to the contracts
with the federal government, the Authority has power sales contracts through 2017 for sale of
Hoover power to 30 customers and a scheduling entity agreement with Salt River Project (SRP)
through 2011 to receive power from Hoover Dam to deliver to customers. The Authority is
currently preparing a Wind-Hydropower Integration Feasibility Study for the National
Renewable Energy Laboratory.
Mr. Mulholland indicated that the Authority is coordinating with the Energy Office to implement
the Governor's Executive Order whereby all new state-funded buildings constructed after
February 11, 2005 must derive at least 10 percent of energy from renewable resources, comply
with state energy efficiency standards, and meet or exceed "silver" Leadership in Energy and
Environmental Design standards (Copy of Slide Presentation, Attachment 15). He noted that the
Members were provided with copies of the Authority's 46th Annual Report (Attachment 16) and
Response to Sunset Review Inquiries (Attachment 17).
Senator Leff noted that a bill was passed several years ago stating that all boards, commissions
and agencies can no longer prepare and distribute fancy annual reports, but instead, make the
information available on the Internet. Mr. Mulholland responded that the Authority's bonds are
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rated by national rating agencies. The Annual Reports are primarily sent to bondholders and
people that buy the bonds, and it costs $19,000 to produce the report.
Senator Cheuvront asked the life span of hydroelectric facilities. Mr. Mulholland replied that
hydroelectric facilities last much longer than fossil and nuclear-type plants where the life
expectancy is 30 to 40 years, and then technology is outdated. Hoover Dam is upgraded and
modified continually, so the project is a very important part of the power program in the
southwestern U.S. Barring some tragedy, the life span is probably hundreds of years.
Chairman McComish asked how much of the total power in Arizona is generated by the
Authority. Mr. Mulholland answered that the total is about 12,000 megawatts and the Authority
generates about 400, so 24 percent. What makes Hoover power so valuable is that it is a peaking
resource, unlike Palo Verde units, which run all the time. The Hoover unit runs only during
peaks and can accelerate very quickly because it only involves putting water through the unit.
Accelerating with a fossil unit or even a gas turbine is like accelerating with a car where there is
much wear and tear on the car and fuel efficiency is reduced. Hydro units do not suffer from
those same problems, which is why the Authority entered into the agreement with SRP to take
advantage ofthat ramping capability.
Chairman McComish recalled that it is more cost effective for SRP than other sources. He asked
how more electricity can be obtained. Mr. Mulholland said that is on the agenda. There will be
a reallocation of power in 2017 among the states of California, Nevada and Arizona, and he
would like to see Arizona receive a larger share than in the past.
Senator Leff moved that the Committee of Reference recommend to the Legislature
that the Arizona Power Authority be continued for 10 years. The motion carried by
a roll call vote of 8-0-0-2 (Attachment 18).
Without objection, the meeting adjourned at 11 :38 a.m.
Lind" Taylor, Commi~ e Secretary
November 18, 2005
(Original minutes, attachments and tape are on file in the Office of the Chief Clerk).
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Attachment C
COMMITTEE OF REFERENCE
House Of Representatives Committee On Commerce
Senate Committee on Commerce and Economic Development
PERFORMANCE AUDIT
PURSUANT TO TITLE 41, CHAPTER 27
ARIZONA REVISED STATUTES
INDUSTRIAL COMMISSION OFARIZONA
BOILER ADVISORY BOARD
EMPLOYMENT ADVISORY COUNCIL
OCCUPATIONAL SAFElY AND HEALTH
ADVISORY COMMITTEE
OCCUPATIONAL SAFElY AND HEALTH
REVIEW BOARD
DECEMBER
2005
/
INTRODUCTION AND BACKGROUND
The Industrial Commission (lCA) is a regulatory agency that was created in 1925 as a
result of legislation implementing the constitutional provisions establishing a workers'
compensation system.
In 1969, the workers' compensation system was reorganized and expanded to include
private insurance companies. The State Compensation Fund was split off from the lCA
and established as a separate agency responsible for pro:viding workers' compensation
insurance. The lCA retained its authority as the file of record for workers' compensation
claims and its regulatory authority to oversee the processing of workers' compensation
claims. The licensing authority for insurance carriers and the rate setting for workers'
compensation insurance was given to the Department ofInsurance.
Since that time, the lCA's authority has been expanded to cover other occupationally
related issues such as occupational safety and health, regulation of youth employment
laws, resolution of wage disputes, vocational rehabilitation, workers' compensation
coverage for claimants of uninsured employers, expanded regulatory authority over
uninsured employers, approval authority for compromise and settlement agreements,
authority to grant self-insurance to individual employers and to groups of employers,
bankruptcy and issues arising out of proceedings involving insolvent insurance carriers
and self-insured employers.
The policy setting body for the lCA is a five-member Commission·whose members are
appointed by the Governor and confIrmed by the Senate to staggered five-year terms.
The Commission typically meets every Thursday. The meetings are publicly noticed and
are conducted in accordance with the state's open meeting laws. All Commission agendas
are posted in advance of each meeting on the agency website (www.ica.state.az.us).
Additionally, a summary of the minutes of each meeting are also posted on the lCA's
website. The Commission members and their affiliations are listed as follows:
Chairman, Jean Pierre Angelchik, M.D., surgeon and inventor
Vice Chairman, Joe Gosiger, CWA StaffRepresentative for AZ, NM, and Utah
Commissioner Brian Delfs, Captain, Tucson Fire Department
Commissioner Louis Lujano, Sr., Senior Field Representative AFSCME
Commissioner Marcia Weeks, Business owner
The Commission oversees an Agency with 313 employees and an operational budget of
approximately $17,700,000. As a non-general fund Agency, the Industrial Commission
is funded by an annual tax that cannot exceed 3%. The tax rate currently is set at 3%.
(See Tab· 1 for Examples of Commission agendas and minutes, a budget summary and an
organizational chart of the lCA)
1. OBJECTIVE AND PURPOSE OF ESTABLISHING AGENCY
The objective and purpose of establishing the Agency is found in Chapter 1 of Title 23 of
Arizona Revised Statutes, specifically A.R.S. §23-l07 and §23-l08.03.
Under A.R.S. §23-l07 the Commission has full power, jurisdiction and authority to:
1. Administer and enforce all laws for the protection and life, health, safety and
welfare of employees under every law when such duty is not specifically
delegated to any other;
2. Act as a regulatory agency insuring that workers' compensation carriers are
processing claims in accordance with the provisions of Chapter 6 of this title;
3. Promote the voluntary arbitration, mediation, and conciliation of disputes;
4. License and supervise the work ofprivate employment offices;
5. Upon petition of any person that any employment is "not safe or injurious to the
welfare of any employee, the commission has power and authority to conduct an
investigation;
6. Collect, collate, and publish statistical and other infonnation relating to"
employees, employers and places of employment; and
7. Formulate and adopt rules and regulations for affecting the purposes of this
article.
Under A.R.S. §23-108, it states that the powers and duties prescribed by law to the
Commission under Chapters 1 (Industrial Commission), 2 (Employment Practices), and 6
(Workers' Compensation) and Article 2 of Chapter 3 (private Employment Agents) of
Title 23 may be delegated to the director or any of its department heads or assistants
except:
1. Making rules and regulations
2. Commuting awards to a lump sum
3. Licensing self-insurers
2. EFFECTIVENESS IN MEETING ITS OBJECTIVES AND PURPOSE
The objectives and purpose of the lCA are accomplished by the five member
Commission and through the major divisions of the Agetncy.
2
Claims Division
The Claims Division has 84 FTE's. Under Chapter 6 of Title 23 of the Arizona Revised
Statutes, the Claims Division has the responsibility for ensuring that 550 insurance
carriers/third party processors and 125 self-insured employers are processing workers'
compensation claims appropriately.
Since 1925 the Claims Division has been the file of record for approximately 6 million
claims. In 1991, the Claims Division's computer system was overhauled and the ICA
implemented new software and a paperless optical disk and document processing system.
Because of that system, we were able to immediately see significant increases in
productivity.
As a result of that system, the Claims Division is able to process 6,000 documents per
day and has ready access to over 40 million documents stored in the system. Action
documents are electronically forwarded to the appropriate workstation and are brought up .
on a computer screen on an oldest date basis first. Claims Division personnel, as well as
other Agency personnel, have multiple electronic access to the same file at the same time.
Utilizing the optical disk system, our Claims personnel are able to answer approximately
150,000 telephone inquiries annually and are able to provide current information
regarding an individual's workers' compensation claim. Equally important, supervisors
are able to monitor the work of their subordinates from their individual computers and are
able to monitor the individual's productivity and ensure that backlogs are avoided. With
this system in place, we are able to make in excess of 31,000 official determinations per
year. The major areas for those determinations are as follows:
Average Monthly Wage Awards (A.RS. §23-1061 F) - The Claims Division
establishes the average monthly wage for claimants who have been injured in excess of 7
days. To make this determination the Claims Division gathers wage data from the
insurance carrier and the claimant. In FY '05 the Claims Division issued 16,479 wage
awards. Of this amount, 1,082 insurance carrier recommendations were disapproved.
Statutorily, the Claims Division has 30 days to make a determination, and our average for
this period was 37 days.
Leave the State Requests (A.RS. §23-1071 A) - A claimant that is undergoing medical
treatment is not permitted to leave the state for more than two weeks unless the claimant
has written approval from the Claims Division. In FY 'OS, the Claims Division processed
402 requests to leave the state. The average time frame to process a request was 19 days.
Requests to Change Doctors (A.R.S. §23-1071 B) - A claimant cannot change his/her
treating physician without the permission of the insurance carrier, physician or the
Claims Division. In FY 'OS, the Claims Division made 1,942 determinations. On
average, a request to change a physician was made in 17 days.
Permanent Facial Disfigurement and Loss of Teeth Awards [A.RS. §23­l044(
B)(22)] - For permanent disfigurement of the head or face, which includes injury to
3
or loss of teeth, the Claims Division has authority to award compensation for a period of
18 months. In FY 'OS, the Claims Division issued 539 awards. On average, an award
was issued in 55 days.
Loss of Earning Capacity (LEC) Determinations (A.R.S. §23-1047) - The Claims
Division is responsible for determining the loss of earning capacity for claimants who
have incurred a permanent impairment that results in an unscheduled injury. In FY 'OS,
the Claims Division issued 3,201 LEC Awards. Statutorily, the Claims Division has 90
days to issue an award, and the average for FY '05 was 100 days.
Petitions for Rearrangement (A.R.S. §23-1044 F) - Based upon changes either in the
physical condition or in the earning capacity of the injured worker, a claimant or the
insurance carrier can petition for a rearrangement of an LEC award. In FY 'OS, the
Claims Division issued 364 awards regarding rearrangements. Even though there is no
statutory time frame, the average time for these determinations was 81 days.
Training [A.RS. §23-107 (A)(6)] - The Claims Division, as a part of its regulatory
effort, provides instruction and training to insurance carriers, self-insured employers and
third party processing companies. Annually, the Claims Division conducts two large
claims seminars. In·the summer of each year the Claims Division conducts a two-day
seminar that provides hand,s-on training for claims processors, attorneys, and other
interested parties. This seminar is held in Arizona and is attended by approximately
1,100 participants. A detailed claims seminar manual is prepared and is utilized by the
attendees and those that could not attend as a primer regarding the appropriate processing
of Arizona workers' compensation claims. The Claims Division also puts on a claims
seminar in California in the spring of each year to educate those out of state processing
companies regarding Arizona's workers' compensation system. Thishas proven to be an
invaluable tool in reducing the number ofprocessing errors.
Additionally, as a part of our regulatory effort, if we are continuing to have problems
with a particular carrier or self-insured employer, the company is required to undergo a
mini-seminar for their personnel. This training is provided by one our Claims personnel
at the company's location and covers all of those processing Arizona's claims. The travel
and per diem costs associated with this training are borne by the company receiving the
training.
Because the system is demanding and a claimant can lose benefits if they fail to comply
with the statutes, the Claims Division expends significant resources in educating the
claimant to ensure that they are aware of their obligations under the law. First, a
computer-generated letter is mailed to each claimant when their claim is filed with the
Division. This letter gives the claimant basic information regarding their obligations
under the workers' compensation system. The Claims Division also provides a pamphlet
that explains the system in layman's terms. The pamphlet will be mailed to those that
cannot get a copy at our Phoenix and Tucson offices. Additionally, the lCA provides
information on our website that addresses and answers the most frequently asked
questions.
4
In FY 'OS, the Claims Division conducted 13 mini-seminars, assisted 696 individuals at
the front counter, sent 121,000 computer-generated letters, answered 150,000 telephone
inquiries, and had 180,000 hits on our website.
Additionally, another mechanism to assist claimants is our Ombudsman's Office, which
was created by A.R.S. §23-110, to assist recipients of workers' compensation benefits
and to provide information to injured workers regarding the workers' compensation
system. In FY 'OS, the Ombudsman's Office answered 2,796 telephone inquiries,
answered 49 written inquiries, and assisted 433 claimants in person.
In September of2004, the Workers' Compensation Research Institute (WCRI) published
the results of a study it conducted of Arizona's workers' compensation system. This
independent, non-partisan, and not for profit research organization conducted a yearlong
study of the Industrial Commission's role in Arizona's workers' compensation system.
The WCRI study determined that "most observers commented favorably on the State
agency's active role in educating and assisting system participants". The study also
determined that the Claims Division's active administrative role was responsible for the
lower litigation rates. (See Tab 2 for the executive summary and selected tables of the
WCRI study).
Administrative Law Judge Division (ALJ)
The Administrative Law Judge Division (ALI) is authorized to conduct hearings and
resolve legal disputes in the areas of workers' compensation, occupational safety and
health and youth employment. The ALJ Division has 55 FTE's. It employs 17
administrative law judges in Phoenix and 4 administrative law judges in Tucson. All
judges are appointed by the five-member Commission and are active members of the
State Bar of Arizona. Each judge must have a minimum of 5 years experience in
workers' compensation, labor and employment law or a related field.
The Administrative Law Judge Division is sensitive to its role as being an unbiased
adjudicator, which is especially difficult when claimants choose to represent themselves
(pro se). Based upon input we have received from unrepresented claimants, we have
developed instructional materials through the ICA's website. Additionally, each judge
has been instructed to conduct a pre-hearing conference with the parties whenever there
is an unrepresented 'claimant to ensure that there is a clear understanding regarding the
procedures and the evidentiary burdens that are the responsibilities of the parties.
Currently, the ALI Division is working with the State Bar Association in developing an
instructional video for unrepresented claimants.
The judges have been trained in mediation techniques and utilize those techniques in the
administrative resolution of disputes.
5
ALJ Performance Issues:
Workers' compensation claims are filed and processed in the Claims Division. If a
dispute develops among the interested parties (injured worker, employer, insurance
carrier, or Special Fund), a request for hearing is filed and the case is forwarded to the
ALJ Division for resolution. Among the issues that may arise over the life of a claim are
compensability, temporary disability benefits, continuing benefits, supportive medical
maintenance benefits, permanent disability benefits (loss of earning capacity), reopening
based on a new, additional or previously undiscovered condition, and rearrangement of
benefits based on a change in the injured workers' earning capacity.
OSHA cases are referred to the ALJ Division when employers found in violation of
workplace safety and health requirements formally contest a citation received from the
ICA.
In FY 'OS, 8,001 workers' compensation cases were referred to the ALJ Division.
ADOSH forwarded 124 safety and health cases. Cases are assigned to an ALJ who
serves as the presiding ALJ for the duration of the hearing process on the issues raised in
the request· for hearing and any other substantive issues that arise before the hearing
record is closed. The presiding ALJ sets the initial hearing between 60-90 days from the
date the case was received in the division. This period provides the parties with time to
complete discovery, schedule evaluative medical examinations, conduct additional
investigation, and to explore settlement possibilities.
Generally, informal conferences with unrepresented injured workers are held a few weeks
before the first hearing. In FY 'OS, 4,265 informal conferences were conducted. The
timing of an informal conference depends upon the nature of the case, the complexity of
the issues, as well as the AU's assessment of whether earlier intervention will encourage
settlement or appears necessary to help the injured worker understand and prepare for the
hearing process. Informal conferences are also held at the request of the parties, for
example, when a discovery or procedural issue arises that the parties are unable to resolve
themselves.
The venue for hearings is the county in which an injured worker resided at the time of the
injury or such other place as selected by the ALJ (A.R.S. §23-941 (D). In FY 'OS, the
ALI Division held 6~593 hearings. Ninety percent ofthem were held in either Phoenix or
Tucson. The remaining 10% were held around the state in such locations as Flagstaff,
Prescott, Lake Havasu City, Yuma, the White Mountains, Casa Grande, Sierra Vista, and
Nogales.
Workers' compensation cases often require multiple hearings to take testimony from all
necessary witnesses. Injured workers and lay witnesses usually testify at the initial
hearing. Further hearings are held for the parties' medical experts and labor market
consultants. Coordinating the schedules of all parties, their representatives, the expert
witnesses, and the ALl's can take several weeks to several months. Further hearings for
medical experts are conducted telephonically. This allows doctors to participate without
6
traveling to the Commission offices or remote sites for out of town hearings.. The ALI
Division relies on written medical evidence in cases where live medical testimony is
purely duplicative and the parties waive their right to cross-examine the author of
submitted documents. Most parties do not waive this right.
At the conclusion of all hearings, the record is closed and no new evidence is accepted.
Written decisions, containing the ALl's findings, legal analysis and conclusions, are
issued in all cases. In FY '05, the ALI Division issued 7,774 awards. The average
number of days to bring a disputed workers' compensation case to resolution was 118.5
days in FY '05.
An interested party disagreeing with an award may request review. In OSHA cases, the
request is forwarded to the Occupational Safety and Health Review Board, an
independent body outside of the Industrial Commission, and the ALJ Division has no
further involvement in the case. In workers' compensation cases, a request for review is
considered by the presiding ALJ.. All parties are given an opportunity to participate in the
review process. The ALJ issues a Decision Upon Review that may affirm, reverse,
modify and/or supplement the original award. If a party disagrees with the Decision
Upon Review, the party may seek appellate review by filing a Petition for Special Action
in the Arizona Court of Appeals. The Court of Appeals must either affirm the ALl's
decision or set it aside; it lacks the authority to modify the decision.
Mediation is available in workers' compensation cases on a voluntary basis. It is offered
to employers in all OSHA disputes. All parties must agree to mediate and, with rare
exception, all parties must be represented by counsel, or, in OSHA cases, by an
authorized representative. Upon request for mediation, the presiding ALI refers the case
to one or two ALl's who serve as third party neutrals. If the dispute is resolved, an
agreement is submitted to the presiding judge for approvaL If it is not resolved, the case
is returned to the hearing process. Mediation is confidentiaL The parties agree they will
not share information outside the process. The mediators do not divulge information
unless authorized by the parties and they do not discuss the case or what occurred during
the mediation with the presiding judge whether or not the case is resolved.
Arizona Division of Occupational Safety and Health (ADOSH)
The Arizona Division of Occupational Safety and Health (ADOSH) operates under an
approved plan with the U.S. Department of Labor's Occupational Safety and Health
Administration. ADOSH has 70 FTE's and is partially funded through two federal
grants. Arizona is one of 26 states that has been determined to be "as effective as"
federal OSHA.
The Arizona Division of Occupational Safety and Health has essentially four programs ­compliance
occupational safety and health, consultation/training, boiler, and elevator.
Compliance Program - Under the occupational safety and health compliance program,
compliance safety and health officers conduct unannounced inspections using procedures
7
adopted by the Commission and approved by the U.S. Department of Labor. An
unannounced inspection begins with an opening conference with management in which
the scope of the inspection is discussed. This can be a wall-to-wall inspection of the
entire jobsite, or it can be limited or focused on certain types ofhazards such as trenching
or fall ha,zards, or it can be focused only on complaint items. The employer is invited to
accompany the compliance officer or have a representative accompany the compliance
officer during the inspection. If a labor organization represents employees, we may ask
that a representative of that labor organization also accompany us. If no labor
organization is present, the compliance officer will interview a representative sampling of
employees. This is done with a minimum of disruption. During the course of the
inspection, violations found are pointed out to the representatives.
The types of inspections conducted by compliance officers fall into three categories:
scheduled inspections, complaint inspections, and fatality/accident inspections.
Generally, scheduled inspections may be any programmed inspection. This can be a
planned inspection that is based upon type of industry, or it can be focused on specific
issues or hazards like trenching, lead exposures or fall hazards. Complaint inspections
are those inspections that are generated by complaints from the public or employees.
Fatality/accident inspections are those inspections that are generated by occupational
fatalities or accidents that result in serious injuries, which could have become fatalities or
multiple hospitalizations.
In FY 'OS, occupational safety and health compliance officers conducted 1,135 scheduled
inspections, 297 complaint inspections and 53 fatality accident investigations.
During the course of these types of inspections, compliance officers determine whether
there are violations of adopted occupatiorial safety and health standards and regulations
or generally accepted industry practice. The data regarding inspections that occurred in
FY '05 are:
• 997 willful/serious or repeat violations (with penalties)
• 2,228 non-serious violations (no penalties)
• $2.09 million assessed
• $1.32 million collected and depositedin state's general fund
• 44.3% of inspections are in compliance with no violations
Consultation Program - The consultation and training program is designed to provide
assistance and information to employers and employees. Any employer can request
assistance regarding a specific safety and health issue or can ask for an evaluation of an
entire jobsite. Consultants conduct inspections and report by letter the results of that
inspection. As long as there is agreement by the employer that all serious safety and
health violations found will be corrected, then no penalties or citations are issued.
In FY '05, consultation activity is listed as follows:
• 1,080 consultation surveys conducted
8
• 2,367 hazards found during consultation surveys
Training - The training officers for the division conducted 390 training sessions and
trained 6,034 employees and 2,844 employer representatives.
Award Programs - The consultation program also evaluates employers for two types of
awards programs. The voluntary protection program is a national program in which
Arizona participates. This program is recognized nationally as the Malcolm Baldridge
equivalent for safety performance. These are corporate programs in which management
has demonstrated a commitment to their employees by providing a safety program, which
has significant employee participation that has resulted in injury/illness experience data
that is 50% lower than the average for their industries. To date, 13 corporations and one
city have received this recognition. The other program is the Safety and Health
Achievement Recognition Program, which is designed to recognize smaller employers
who have safety and health programs that have resulted in injury and illness experience
data well below their industry peers. To date there are 36 companies that have received
this award.
Boiler
Within the Arizona Division of Occupational Safety and Health (ADOSH) is the Boiler
Section. Arizona Revised Statutes, Title 23, Chapter 2, Article 11 created this boiler
program. Under the program, boilers are inspected annually. If a boiler is found to be in
violation of national standards that have been adopted by Arizona, then a notice of
violation is issued with no penalties. If the boiler violations have been corrected and the
boiler is found to be free of violations, then an operational certificate is issued. If the
violations have not been corrected, then a cease and desist order will be issued.
Inspections of boilers are conducted by boiler inspectors from ADOSH and by authorized
"special inspectors", which are private individuals usually in the employ of mines, utility
companies and insurance companies that qualify as special inspectors under A.R.S.§ 23­485.
Special inspectors provide their inspection reports to the Boiler Section, and based
upon those reports certificates of operations are issued. In FY 'OS, 2,666 boilers were
inspected and 377 deficiencies were noted.
It is important to note that nothing in the Boiler law prohibits a political subdivision from
asserting jurisdiction over boilers if it is determined by the Commission that the political
subdivision has adopted standards and regulations that are equal to the standards and
regulations adopted by the Commission. No political subdivision has currently asserted
jurisdiction over boilers.
By statute, A.R.S. §23-474(2), the Commission is required to establish a Boiler Advisory
Board. This Board is required to meet at least annually and is composed of members
knowledgeable in the industry and shall be reasonably balanced in representation in terms
of industry, owner/operators, labor and public. These meetings are duly noticed and
conducted in accordance with the open meeting law.
9
The individual members of that Board are as follows:
Frederick Anderson - representing insurance industry
R. Edward Emerson - boiler consultant
T. Dean McCook - boiler repair
Terry Melot - boiler repair
Paul Smith - boiler manufacture
Rex Featherstone - utility (owner/operator)
Mike Rutledge - utility (owner/operator)
Elevator
Within the Arizona Division of Occupational Safety and Health (ADOSH) is the Elevator
Section. Arizona Revised Statutes Title 23, Chapter 2, Article 12 created the Elevator
program.
The Elevator program is an equipment-oriented program that annually inspects all
elevators and escalators in the state. No conveyance under the jurisdiction of the elevator
section shall operate unless the conveyance has a Certificate of ]nspectio.t;l showing that
the conveyance was found to comply with standards and regulations adopted by the
Commission.
If the Elevator Section of ADOSH, following an inspection or investigation, determines
that there is reasonable cause to believe that there is a violation of adopted standards or
regulations, then a correction order ·is issued detailing the violations and the needed
repairs. If, in the opinion of the Director (ADOSH) or his authorized representative, the
continued operation of the defective conveyance constitutes an immediate danger, then
the Director or his authorized representative may condemn such device and require it to
be returned to a condition allowing safe operation before being put back in service. If the
owner/operator fails to comply with the correction or condemnation order, then the
Commission may file an action in Superior Court enjoining the owner/operator from
engaging in further actions that are in violation of those orders. The elevator inspectors
inspected 4,580 elevators in FY '05 and found 1,494 deficiencies.
Under the provisions of this statute, nothing in this statute impairs a political subdivision
from asserting jurisdiction if it is found by the Commission that the political subdivision
has adopted standards that are at least equal to those promulgated by the Commission.
The City of Phoenix has asserted jurisdiction over elevators within the city's boundaries,
and the Commission has'determined that the standards adopted by Phoenix are equal to
the Commission's.
Under A.R.S. §23-49L04, the Commission has established an Elevator Advisory ~oard
to assist the Commission in drafting standards and regulations. The Elevator Advisory
Board's meeting is duly noticed and is conducted in accordance with the state's open
meeting law. The make-up of the members ofthe Advisory Board is as follows:
10
Rudy Mezosi - Kone Elevator Company
Dave Martin - Thyssen Krupp Elevator Company
Larry Griese - Schindler Elevator Company
Tom Ogden - Amtech Elevator Company
Don Kroenenbette - Centric Elevator Company
Jamie Flannigan - Millar Elevator Service
Karl Morse - University of Arizona
Jerry Cluff - Union of Elevator Constructors
Mike Barnes - Advanced Elevator Company
Michael Hotchkiss - Hotchkiss Elevator Company
Tony Meehl - Otis Elevator Company
Mark Gustafson - City ofPhoenix
Occupational Safety and Health Advisory Committee
In accordance with A.R.S. §23-409, the Commission created the Occupational Safety and
Health Advisory Committee. The purpose of the Committee is two fold: to assist the
Commission in drafting standards and regulations and to provide recommended names to
the Governor for the Occupational Safety and Health Review Board. The Committee
shall be composed of a reasonably balanced representation of regulated industries,
including agriculture and labor and other persons knowledgeable of safety and health.
The make-up of the committee is as follows:
Stacia Johnson-General Dynamics - Management
Jody Sims- FNF Construction - Management
Robert Hume - Management
Christopher Van Kirk - Pipefrtters Union - Labor
Jim Kelley- Millwrights Union - Labor
Vacant - Labor
Paul McKee, City of Scottsdale - Public
Janet McLay, City of Tucson - Public
William Cavness, Asbestos Institute - At Large
Charles Alvarez, OTAC - AtLarge
Abel Almanza, Pan ~erican Insurance - Agriculture
Although there is no statute or rule specifying when the committee is to meet, the practice
has been for the committee to meet quarterly with few exceptions. The Advisory
Committee met four times in calendar year 2000, four times in 2001,three times in 2002,
four times in 2003, two times in 2004, and to date, two times in 2005.
As an approved prograrp. under the U,S. Department of Labor's Occupational Safety and
Health Admi.rllstration, ~Arizona's occupational safety and health program is annually
evaluated. Included, under Tab 3, is the latest evaluation, covering the period of Oct. 1,
2003 to Sept. 30, 2004.
11
Labor Department
The Labor Department has 15 FTE's. The Labor Department's primary responsibility is
in three areas: youth employment law enforcement, resolution of disputes involving
wages, and regulating private employment agencies that charge fees, which includes
placement agencies, career counseling firms, modeling and talent firms, and sitting
servIces.
Wage Dispute Resolution
The Labor Division investigates the non-payment of wages (not exceeding $2,500)
pursuant to A.R.S. §23-350, et seq. The non-payment of wages includes hourly, vacation
pay, commissions and bonuses. Most of the investigations are conducted through the
mail; however, the Department does hold investigative meetings between the parties in a
case. The first part of the process involves an informal settlement conference. If the case
cannot be settled, an investigative meeting is held in which all the facts in the case are
gathered. As a result of the investigative meetings, the Department issues a formal
determination.
During FY '04, 3,104 wage claims were filed against employers. Of these, 1,450 wage
claims were determined to be valid. Of the valid claims, 1,026 claims were paid for a
total of 71 %. Judgments were ordered from the Superior Court in 293 cases. (please
note FY '05 data is not available because a number of cases are pending determinations).
Youth Employment Law
The State's youth employment laws are enforced by the Labor Division pursuant to
A.R.S. §23-230 et seq. There are hour restrictions for youths under the age of sixteen. In
addition, there are two groups of occupation restrictions, i.e., for youths under the age of
sixteen and youths under the age of eighteen. The Labor Division reviews every
workers' compensation claim where the injured worker is under the age of eighteen. In
FY '05, 1,060 injury reports were received and administratively reviewed..
After that review, 126 incidents were physically investigated. In addition, 38 public
complaints were investigated and 680 employer visits were conducted at the employer's
place of business duii.ng FY '05.
A maximum penalty of $1,000.00 is imposed on employers who violate the youth
employment laws. I:h FY '05, the Labor Division issued 58 Cease and Desists orders for
a total of $1 0,540.00 in penalties.
Licensing of Employment Agencies
The Labor Division licenses private employment ,agencies which charge fees to
applicants seeking employment pursuant to A.R.S: §23-521 et seq. These agencies
12
include career counseling fIrms, model & talent agencies, placement agencies, sitter
services, nursing agencies and domestic placement agencies.
There are currently 59 licensed agencies in the State of Arizona. Of these, 27 are model
& talent agencies, 25 are career counseling fIrms, 3 are placement agencies, 2 are sitter
services, 1 is a nurses agency and 1 is a domestic service agency. In FY '05, the Division
processed 10 new applications and 52 renewal applications. In addition, it investigated
11 unlicensed agencies and 4 complaints against career counseling firms. The four
complaints were resolved and a total of $5,875.00 was refunded to all four complainants.
Employment Advisory Counsel
The Arizona Employment Advisory Council was established in 1970 to advise the
Industrial Commission about private employment agency industry needs. A.R.S. §23­522.02
directs the Council to inquire into the needs of the employment agency industry
and to consider and make recommendations to the Industrial Commission of Arizona
(rCA) and the Labor Division Director on all matters relating to employment agencies in
the State. The Council serves in an advisory capacity, whereas the rCA is responsible for
the direct administration and enforcement of employment agency statutes and rules and
the supervision of the industry. The Council assists the rCA by reviewing and making
recommendations to the Commission regarding new license applications for employment
agenCies, making recommendations on license renewal applications and making
legislative and rulemaking recommendations. The Council met four times in calendar
year 2004 and has met two times in calendar year 2005.
The Advisory Council is composed of seven members appointed by the lCA for 3-year
terms (A.R.S. §23-522.01.B and A.R.S. §23-522.01.C). Three members must have at
least 3 years' executive or managerial experience in the private employnient agency
industry in Arizona. The Council currently has a member in the career counseling
industry, the model & talent agency industry and the employment agency industry. The
other four members must have held positions in commerce or industry in Arizona for at
least 3 years. The members and their representations are as follows:
Chairman, Gerald Banky
Patricia Grumm
Linda Baugh
Dani Green
Eric Johnston
Madalynn Terzenbach
TerryWien
Special Fund Division
- Asarco (Private Sector)
- Home Depot (Private Sector)
- American Career Executives (career counseling)
. - Dani's Agency (model and talent agencies)
- Morgan &Associates (private Sector)
- (Private Sector)
- Dorado Employment Agency (employment agencies)
The Special Fund has 19 FTE's. The Special Fund Division is responsible for
administering benefits from a trust fund (Special Fund) that was legislatively created to
provide the following work~rs' compensation benefIts:
13
1. Providing benefits for uninsured claimants;
2. Continuing workers' compensation benefits for claimants of insolvent carriers and
insolvent self insured employers;
3. Sharing of permanent disability benefits (LEC Awards) for claimants who have
preexisting non-work related conditions set forth in A.R.S. §23-1065 and
claimants who have prior work related scheduled injuries;
4. Vocational rehabilitation benefits;
5. Continuing medical benefits for pre-1973 workers' compensation claims.
The Special Fund is a trust fund that consists of the surplus in revenues transferred into
the Special Fund from the administrative fund and revenues from assessments,
investment income and lease income from property owned by the· Special Fund. The
funds in this trust fund can only be used for the purposes set forth in A.R.S. §23-907,
§23-966and §23-l065. All salaries of the Special Fund Division are paid out of the
ICA's administrative fund. Currently the assessments (in accordance with A.R.S. §23­966
and §23-l065) to fund the Special Fund are 2 1/2% of workers' compensation
prerrnums.
The Special Fund is responsible for administering benefits in the following areas:
1. No-Insurance (A.R.S. §23-907) - The Special Fund is responsible for
administering all claims filed by employees who have sustained a work place
injury while working for an employer that is violating law by not providing
workers' compensation coverage for its employees. Upon the filing of a no­insurance
claim, an investigation is conducted and a decision to accept or deny the
claim is made. Upon acceptance, the claim is processed and the injured employee
is provided with compensation for lost wages and medical benefits as provided by
law.
It is important to note that, statutorily, prior to 2003, the Special Fund Division
could not proyide benefits to an injured worker until there was finality to a claim.
Additionally, there was little or no statutory deterrence for being in violation of
the law by being uninsured because the penalties for not being insured were
extremely low. In 2003, the legislature amended the law allowing the Special
Fund Division earlier intervention in a claim. Additionally, the ICA was given
authority to issue much larger penalties to uninsured employers violating the law
by not providing workers' compensation insurance coverage.
There were 3,281 no~insurance awards issued in FY '05. Expenditures for no­insurance
in FY '05 were 7.2 million dollars.
14
2. Insolvent Insurance Carriers or Self-Insured Employers (A.RoS. §23-966) ­The
Special Fund Division acts as a guarantee fund and is responsible for the
administration of claims when an insurance carrier or self-insured employer is
unable to pay benefits. Since 2001, the ICA has seen a number of insurance
carriers and self-insured employers become insolvent. Our actuarial liability for
insolvent carriers increased from $21.4 million to $241.2 million. As a result, we
have seen our obligations for claimants grow from a relatively small number to
now over 1,200 open workers' compensation claims. In terms of net assets, the
Special Fund went from $80.1 million dollars in 2001 to a net asset deficit of
$162.6 million at June 30, 2004. We estimate the net assets deficit will be $150
million at June 30, 2005. On an annualized basis with the change to the statute
last year (allowing us to transfer unspent appropriated revenues from the
administrative fund to the special fund),· we are able to meet our annualized
obligations.
3. Apportionment (A.R.S. §23-1065) - This statutory provIsIOn provides
circumstances in which the SpecialFund will share responsibility with insurance
carriers/self-insured employers for a portion of liabilities for certain loss of
earning capacity awards. The Special Fund received 460 reimbursement
(apportionment) requests in FY'05 that resulted in a $2million dollar expenditure.
4. Vocational Rehabilitation (A.R.S. §23-1065) - The Special Fund Division
administers vocational rehabilitation benefits to injured workers who are unable to
return to their date of injury occupations. The Special Fund administers two
programs:
a. Through a contract with the Department of Economic Security's
Rehabilitation Services the capabilities of injured workers with
unscheduled injuries (injuries to the torso and head) are assessed and a
vocational plan is developed. The Special Fund then will train an injured
worker for meaningful employment.
b. For those that have scheduled injuries (generally injuries to the
extremities) the Special Fund has contracted with a number of private
vocationed rehabilitation counselors to evaluate the capabilities of the
injured worker and to develop a plan to train the injured worker for
meaningful employment. This can take two forms: the typical class room
training or on-the-job training. If an employer is agreeable, the Special
Fund will pay for 50% of the salary for an individual, if upon successful
completion of training the employer will provide employment.
In FY '05 there were 150 rehabilitation awards issued. The expenditures,
which include the continuing costs for programs approved in prior years,
was approximately 2.5 million dollars in FY '05.
15
5. Supportive Care (A.R.S. §23-1065) - Supportive care benefits are paid to
workers injured prior to August 8, 1973 for medical benefits necessary to
maintain their condition at a stationary level or to provide all care if the level of
benefits by the insurance carrier have been exhausted. Currently we have 512
claimants who receive supportive medical maintenance. Expenditures for
supportive care in FY '05 were approximately 4 million dollars.
Legal Division
The Industrial Commission has its own legal counsel separate from the Attorney General.
The Legal Division has 23 FTE's. The Legal Division is responsible for representing the
Industrial Commission before various legal forums within and outside the State of
Arizona. It is responsible for prosecuting our regulatory responsibilities and representing
the Special Fund. The specific functions ofthe Legal Division and its FY '05 activity are
listed as follows:
1. Represents the divisions of the Agency regarding regulatory types of issues that
pertain to their individual operations.
•. 186 cases involving no-insurance
• 124 ADOSH cases
• 3 Labor cases which involved appeals to Superior Court
2. Provides legal advice to the five-member Commission and divisions
• Provided 92 opinions
3. Assists Divisions with the development and adoption ofrules and coordinate rule­making
activities with the Governor's Regulatory Review Commission (GRRC)
regarding promulgation afrules.
• Conducted 3 five year reviews
• Progress report to GRRC
• . Licensing time- frame report to GRRC
• Submitted 2 final rule packages
• 6 rule packages pending
4. Administers a compliance program to ensure that employers provide workers'
compensation insurance coverage for their employees. This program includes the
assessment of civil penalties and the initiation of action in Superior Court
enjoining an employer from conducting their business until they get workers'
compensation insurance.
• Received 1,708 referrals regarding no-insurance coverage
• Identified 1,154 employers as uninsured
• 723 compliance investigations completed
16
• Civil penalties of $250,000 assessed in FY '05
• 20 Civil penalty cases referred to hearing
• 53 cases in which injunction proceedings were initiated in Superior Court
5. Initiates subrogation of third party claims for no insurance claims
• 13 third-party lien files opened in FY '05
6. Represent the lCA before other state and federal agencies and other legal forums
inside and outside the State of Arizona. These include courts in other states,
Bankruptcy Court and Federal Court system.
7. Oversees the collection efforts of the Agency.
• 413 collection files opened in FY '05
• 154 collection files referred to Attorney General's Office
• 39 collection investigations completed
• Approximately $1.3 million collected in FY '05
8. Represents the Special Fund in litigation involving activities of the Special Fund.
These issues include insurance company insolvencies, uninsured workers'
compensation claims, apportionment claims, supportive care etc.
• 186 no-insurance cases
• 142 apportionment cases
• 21 cases involving insolvency issues
9. Represents the lCA in personnel matters.
3. EXTENT TO WHICH THE AGENCY HAS OPERATED IN THE PUBLIC
INTEREST
The general powers of the Industrial Commission address this issue. Specifically, A.R.S.
§23-107A (2) states that the lCA shall, "Administer and enforce all laws for the
protection of life, health, safety, and welfare of employees in every case and under every
law when such duty is not specifically delegated to any other... "
Whether it be workers' compensation, occupational safety and health, resolution of wage
disputes, youth employment laws or any other law the Commission administers, all are.in
the public interest and focus on the protection of life, health, safety and welfare of
employees.
To be more specific, each of the major areas are specifically addressed as follows:
1.. Workers' Compensation - As a regulatory agency, the Commission's role is to
ensure that claims are being processed correctly and that the system for evaluating
17
and resolving disputes is "efficient, fair, and not unnecessarily burdensome on the
parties. The Industrial Commission, through its respective divisions, has provided
protections to the injured workers and benefits to the insurance carriers by
equitably monitoring every aspect ofthe claims process.
• There were 1,082 wage recommendations made by insurance carriers and
self-insured employers which were determined by the Claims Division to
be incorrect. The accuracy of wage information at the beginning of the
claim process is critical in ensuring that the benefit levels are statutorily
correct.
• The intervention of the Claims Division allows the injured worker to
receive benefits promptly. In the WCRI study, only 25% of the loss of
earnings determinations were protested with only approximately 8%
going to hearing. Since the WCRI study, the percentage of loss of
earning capacity determinations being protested has decreased to 18%.
Clearly, the active analysis of an independent body like the Claims
Division allowed the injured worker to receive his/her benefits accurately
and promptly.
• Providing independent analysis of the wage determinations and the Loss
of Earning Capacity has reduced the litigation rate to well below what
exists in other states. This low litigation rate has resulted in reduced
overhead costs to the insurance carriers and reduced premium costs to
employers.
• Both society and the injured worker benefits when injured workers
receive vocational rehabilitation. Under the Special Fund's vocational
rehabilitation program, any injured worker with a permanent impairment
who is unable to return to their date of injury occupation has the ability to
be retrained in a meaningful occupation.
Another and equally important aspect of the workers' compensation system is the
process to resolve disputes. Even though workers' compensation law is complex,
the parties can be assured that an unbiased judge, knowledgeable in the system,
will make an independent determination regarding the issue in dispute.
• Unlike other legal forums, workers' compensation claimants can elect to
represent themselves. A great deal of effort has been made to ensure that
the l;UITepresented claimant has received instruction regarding their legal
responsibilities under the law.
• Additionally, to ensure equality and a level playing field in the resolution
of these disputes, the Commission bears. the costs associated with witness
fees for physicians as well as court reporting costs.
18
2. Safety and Health - The role of the Arizona Division of Occupational Safety and
Health is to ensure that every workplace is free of hazards that could cause death
or serious physical harm to a worker. Both the employees and the employers in
Arizona enjoy the benefits that they derive from having an Arizona Division of
Occupational Safety and Health. This conclusion is based upon the following:
• Arizona has one ofthe lowest rates of injury in the country despite the fact
that construction, a high hazard industry, has been flourishing. Using U.S.
Department of Labor's Bureau of Labor Statistics' data from 2000 thru
2003, the illness and injury rate has decreased 32%.
• Workers' compensation claims generally, another good measure of safety
and health effectiveness, have decreased dramatically in the last 10 years.
Time lost claims, which are the most costly, decreased 38% during that
period.
• Effective safety and health programs result in lower workers'
compensation costs. Arizona employers enjoy the third lowest workers'
compensation premiums in the country. Because of the benefits they have
received from having effective safety and health programs, employers
have been able to see the cost of workers' compensation on a per capita
basis decrease from $521 per employee in 1994 to $292 per employee in
2004, a 41% decrease.
• Elevator and Boiler programs also are beneficial in addressing public
safety as well as occupational issues. Whether it is a hot water boiler in a
motel/hotel or an escalator or elevator in the airport or in a department .
store, employees and the general public receive benefits from having the
knowledge that boilers and public conveyances have been inspected and
are safe.
3. Labor - The. Labor Division assists the public with its investigations of wage
disputes, protects young workers under eighteen from working in hazardous
occu.p.ations, and protects the consumer in dealing with private employment
agenCIes.
• The Labor Division, in addressing wage disputes, is ensuring that
employees have a forum to bring their non-payment of wage issues to an
entity that will independently evaluate their allegation at no cost to them.
While clearly the number of employers unfairly withholding wages is a
minor percentage of the total employer population, the process acts as a
deterrent for those that may be inclined to take unfair advantage of their
employees.
• Ensuring that children are not working in prohibited occupations protects
those individuals from injury and illness at an early age. Limiting the
19
number of hours a child can work, especially during the school year, is
equally important and in the best interests of the child.
• Licensing of employment agencies is important to ensuring that fraudulent
firms are not taking unfair advantage of clients. As an interesting aside, a
number of years ago the ICA introduced legislation to delete from our
jurisdiction the licensing of employment and talent agencies. The
industry, as well as those individuals affected by those industries, came in
mass to the legislature in opposition to that legislation. They testified that
the licensing .of those entities by the Industrial Commission was
instrumental in keeping out fraudulent companies who prey on
unsuspecting individuals. This has proven to be correct. Through the
Employment Advisory Council, prospective employers are screened to
make sure that there are no historical problems associated with these
applicants. As we detailed in the Labor .Department's activities, we have
had complaints regarding unlicensed agencies and/or fraudulent activities
and have interceded to stop operations and provide restitution to the
victims.
4. EXTENT TO WHICH THE RULES ADOPTED BY THE AGENCY ARE
CONSISTENT WITH THE LEGISLATIVE MANDATE
All of the rules adopted by the Agency are consistent with our legislative mandate. With
the exception of OSHA standards that are incorporated by reference, all rules go before
the Governor's Regulatory Review Commission and one of the elements of their review
is whether the Agency has the authority under their existing statutes to propose and
promulgate those rules.
The standards adopted by the Commission that pertain to Occupational Safety and Health
program are federally proposed standards. Because of the mandate to adopt those
standards or their equivalents within specific time periods, there is a statutory exemption
from the Governor's Regulatory Review Commission (GRRC) when we are adopting
federal standards. Nevertheless, these rules are subject to all other ~le making
requirements and are approved by the Attorney General (in lieu of GRRC). As such the
community receives notice of the proposed rulemaking and has an .opportunity to
comment on the rule.s. If the federal standards present problems to the affected industries,
we investigate the issues and take appropriate action either in modifying the standards or
in not adopting the standards. Recently, there was a homebuilding safety standard that
presented significant problems to the affected industry. After hiring engineers and
investigating the matter independently, the ICA noted a number of problems and chose
not to adopt the standards. Over the years, there were at least two other standards that
were not adopted by the Commission because of adverse affects on Arizona industries ­Cotton
Dust and Heat Stress. Both ofthose standards were ultimately withdrawn by U.S.
Departrne~t of Labor for a variety of reasons.
The Agency is given general and specific rulemaking authority in Title 23. See A.R.S.
§§23-107(A)(1) (General); 23-240 (Youth Employment); 23-361 (Wage Claims); 23-
20
405(4) (OSHA); 23-474(3) (Boilers); 23-491.04(3) (Elevators); 23-523 (Private
Employment Agents); 23-921(B) (Workers' Compensation); 23-961(1) (Self-Insurance
Taxes); 23-961.01 (Workers' Compensation. Self-Insurance Pools); 23-1044(G)
(Workers' Compensation Loss of Earning Capacity); 23-1066 (Workers' Compensation
Guardian Ad Litem); 23-1067(A) (Workers' Compensation Lump Sum Commutation).
The Commission's activity associated with rulemaking is listed as follows:
• Workers' Compensation Practice and Procedure, R20-5-101 et. seq., last
amended Feb.3, 2004.
• Occupational Safety and Health Standards, R20-S-601 et seq., last
amended effective June 2, 2003. Occupational Safety and Health Rules of
Procedure before the Industrial Commission of Arizona, R20-5-801 et
seq., last amended in 1975. Recognizing a need to update this Article, the
Agency began preliminary work on this Article in the Spring of 2003,
which work included the scheduling of meetings with a representative of
the regulated community to discuss proposed changes. Following those
discussions, a rule draft was provided to the representative in the Fall of
2003 for comments. No comments were forthcoming regarding this draft,
and the Agency expects to move forward with a Notice of Proposed
Rulemaking this year.
• Self Insurance for Individual Employers, R20-5-1101 et seq., adopted
effective Apri14, 2005.
• Self-insurance requirements for individual employer and workers'
compensation pools organized under A.R.S. §§1l-952.01(B) and 41­621.01,
R20-5-201 et seq. These rules were last amended effective
October 9, 1998 and need further amendment to conform to the recently
adopted Article 11.
• Self Insurance requirements for Workers' Compensation Pools Organized
Under A.R.S. §23-961.01, R20-5-701 et seq., adopted effective September
9, 1998.
• Private Employment Agents, R20-5-301 et seq., last amended effective
September 9, 1998.
• Arizona Boilers and Lined Hot Water Heaters, R20-5-401 et seq., last
amended effective October 9, 1998.
• Elevator Safety, R20-5-501 et seq., last amended effective March 15,
2003.
21
• Wage Claims, R20-5-100l et seq., adopted effective January 26, 1988.
The Agency intends to update this Article and expects to file a Notice of
Proposed Rulemaking by the end of2005.
5. EXTENT TO WHICH THE AGENCY HAS ENCOURAGED INPUT
FROM THE PUBLIC BEFORE ADOPTING ITS RULES AND THE
EXTENT TO WHICH IT HAS INFORMED THE PUBLIC AS TO ITS
ACTIONS AND THEIR EXPECTED IMPACT ON THE PUBLIC.
For rule changes that are expected to have a substantive impact on the community, the
Agency has historically invited public comment prior to the formal rulemaking process.
Inviting public comment and keeping the public apprised of the process is accomplished
primarily through mass mailings, the Agency's website, and public meetings. The
Commission has also taken advantage of the creation of committees, consisting of
representatives of the community to solicit comment and draft proposed rules for
consideration by the Commission. This process at times can be a lengthy one, but in
most cases it has been effective. Because the process is probably unique, the best way to
describe the process is to provide two recent examples: .
1. The 2001 rule amendments to the workers' compensation rules are an example
of such a process..These rule amendments, which became effective August 17,
2001, were the result of extensive work that involved the regulated community
before the formal rulemaking process started. In 1994, a workers'
compensation advisory committee was established by the Commission to
evaluate and provide recommendations for rule changes to the Workers'
Compensation Rules of Procedure. This committee, consisting of Commission
representatives and attorneys representing injured workers and employers, met
numerous times from July 1994 through January 1997. The Committee
presented draft rule proposals to the Commission for its consideration and
adoption. Thereafter, on three separate occasions, Commission staff presented
draft rule proposals to the community for public comment via mass mailings
and its website. The Commission also submitted the rule amendments to GRRC
for courtesy reviews. It was only after significant public comment and feedback
that, on January 14, 2000, the Commission directed that the rule amendments be
filed as a Notice ofProposed Rulemaking with the Secretary of State.
2. We are required by the Governor's Regulatory Review Commission's rules to
review and update our Agency rules every five years. Accordingly, we
recognized the need to update our self-insurance rules. We currently have
approximately 150 employers who are self-insured and there is also an Arizona
Self-Insurance Association.
The ICA began the process of updating those rules by providing all self-insured
employers and their association a copy of the first draft of the proposed rules
and asking for their comments. Based IIp·on their comments, the ICA made
changes and drafted a second version. The second draft was sent it out to all of
22
the parties for comment. Because of confusion regarding some of the proposed
changes, a public meeting was requested with members of the Commission and
the self-insurers in which approximately 40 individuals were present. Based
upon input from that meeting, another draft was developed and mailed to all
parties. After another draft(s), the issues were sufficiently resolved to propose
adoption of the rule package to the Commission to begin the formal rule making
process. With some minor input and changes at the public hearing, the five
member Commission adopted the rule package with no opposition
approximately 2 years after we began the process.
The Agency uses a variety of resources to keep the public informed as to its actions
and expected impact of actions.
• Agency Website:. . The Agency website contains several links, each
designed to keep the public informed as to different areas of interest. The
Agency has maintained a link on i.ts website to a rulemaking page that
attempts to keep the public informed as to the progress of current
rulemaking activity. Additionally, a summary of the minutes from the
Commission's weekly meetings are posted on the website. The
Commission also uses the website to provide information regarding
scheduled public meetings or hearings, or other areas of interest.
• Regulatory Agenda: The Agency posts its regulatory agenda on its
website. The agenda contains a listing of published docket openings,
pending rulemakings, and proposed or final rulemaking packages. The
agenda also lists Five-year reviews scheduled for that year.
• Agency Directory: The Agency directory, updated annually, contains
rules, policy statements, and other information of interest. The directory is
available to the public in the director's office during regular business
-hours.
• Mass mailings: Whether simply informational or in the nature of a
substantive policy statement, the Agency uses mass mailings to apprise the
regulated community ofinformation.
• Annual Commission Seminar: The Commission conducts two claims
seminars, one in California for those processing workers' compensation
claims out of state and the other in Arizona. The claims seminar in
Arizona typically has 1,000 to 1,200 attendees over two days. The
purpose of the seminar is to train attendees on claims processing and to
inform the workers' compensation community regarding topical issues.
The first day is reserved for workshops and the second is a series of
speakers who update the community r~garding changes in medicine, court
decisions, and legislative and rule changes, etc.
23
• Annual Fee Schedule: Under A.R.S. § 23-908(E), the Commission has the
authority to establish fees for physicians, physical therapists,· and
pharmaceuticals. Prior to establishing these fees, the Commission mails a
draft proposal to the community for comment. The public is invited to
either submit written comments or to testify in person before the
Commission at a public meeting.
• Annual Stakeholder's meetings: On an annual basis the Commission sends
its Legislative agenda to the regulatory community and invites the
regulated community to assist it in the establishment of its legislative
agenda. This agenda is sent in advance of a stakeholders' meeting in
which the agenda is presented to the Commission and public comment
invited.
6. EXTENT TO WHICH THE AGENCY HAS BEEN ABLE TO
INVESTIGATE AND RESOLVE COMPLAINTS THAT ARE WITHIN ITS
JURISDICTION.
The Industrial Commission is statutorily able to investigate and resolve complaints that
are within its jurisdiction.
1. Under general powers, the Commission has the statutory right and obligation to
conduct investigations. A.R.S. §23-107 B states, "upon petition by any person
that any employment or place of employment is not safe or is injurious to the
welfare of any employee the commission has the power, with or without notice, to
make investigations necessary to determine the matter complained of'.
This provision statutorily would apply to complaints, which would involve
physical inspections of worksites, which would fall UIider the jurisdiction of the
Commission's Arizona Division of Occupational Safety and Health arid the Labor
Division.
2. The Commission is given specific authority to administer and enforce provisions
contained in the workers' compensation statutes through Arizona Revised Statutes
Chapter 1, Micle 2 of Title 23. These statutory provisions allow the Commission
or their delegated agents through the other Divisions - Claims, Legal or
Administrative Law Judge, to conduct investigations, issues subpoenas for people
or documents and issues sanctions for non-compliance.
3. Under specific laws associated with ADOSH and Labor Division, individuals are
given specific authority to conduct inspections, review documents and to make
determinations regarding complaints filed with those Divisions.
24
7. EXTENT TO WHICH THE ATTORNEY GENERAL OR ANY OTHER
APPLICABLE AGENCY OF STATE GOVERNMENT HAS THE
AUTHORITY TO PROSECUTE ACTIONS UNDER THE ENABLING
LEGISLATION
The Industrial Commission has adequate authority to prosecute actions under existing
legislation covering Industrial Commission administrative activity. With respect to
typical prosecutorial issues such as citations, notice of 'violations, and Superior Court
injunctions, those actions are typically prosecuted by our own Legal Counsel under
existing law.
There are additional issues that can be prosecuted by other prosecutorial bodies like the
Attorney General or County Attorneys under existing law. For example, A.R.S. §23-929
reads, "upon the request of the Commission the attorney general or under his direction
the county attorney of the proper county shall institute and prosecute the necessary
actions or proceedings for the enforcement of the provisions of this chapter".
Under Arizona's Occupational Safety and Health Laws, there are provisions for criminal
sanctions. ADOSH notifies the Attorney General's Office of all fatalities and, as well, in
those cases in which an employee's serious injury or illness has resulted in a willful
violation. The Attorney General for potential prosecution under criminal statutes reviews
these referrals. The County Attorneys do the same. As an example, Pinal County
prosecuted a contractor in Apache Junction for a willful violation in which a youth was
killed in a collapse of an unprotected trench. In another case, the Attorney General
prosecuted a representative of an out of state company for the deaths of two workers
because they did not test the quality of the air before sending workers in to work in an
underground sewage tank.
8. EXTENT TO WHICH THE AGENCY HAS ADDRESSED DEFICIENCIES
IN ITS ENABLING STATUTES, WHICH PREVENT IT FROM
FULFILLING ITS STATUTORY MANDATE
There has been no need to change occupational safetY and health or the laws pertaining to
youth employment, wage dispute or employment/talent licensing. These laws are
adequate to address their respective statutory mandates. However,. there have been a
number of significant changes to workers' compensation laws. We have included a
listing and description of the legislative changes that have occurred to the workers' .
compensation law since our last Sunset Audit. (These changes can be found under Tab
11
Probably one of the most significant statutory changes pertained to the processing of
"no-insurance" claims in our Special Fund (ARS §23-907). Historically this has always
been a problem and one that we have attempted to resolve several times. "No- insurance"
claims are those workers' compensation claims from injured workers who work for an
employer who is violating the law by not providing workers' compensation insurance
25
coverage. In those cases, the ICA's Special Fund is responsible for payment of all
workers' compensation benefits.
In the past, we were not able to provide medical or indemnity benefits to a non-inSured
injured worker until there was finality with that claim. Unfortunately, some of those
violating employers delayed that finality by protesting every aspect of that workers'
compensation claim. Clearly, this was a very unfair situation for the injured worker.
Additionally, there was very little deterrence in being uninsured because the penalty
associated with being uninsured was only $500.
In 2003, the legislature approved a significant rewriting of the statutes pertaining to "no­insurance".
The Special Fund is allowed to administer benefits to a non-insured injured
worker once an investigation is conducted and a determination is made that the workers'
compensation claim is valid. Additionally, the penalties associated with being uninsured
were increased dramatically, $1,000 to $10,000. There have been a number of other
significant changes, but this is one that had a positive impact ~n the operations of the
COrruIDssion and, in terms offaimess, on the uninsured injured worker(s) as well.
With the number of insurance company insolvencies and the fact that the Commission's
Special Fund is the guarantee fund for those insolvent workers' compensation claims, we
have found ourselves involved with insurance issues that are impacting the Special Fund.
Some of these issues are large deductible policies and adequacy of insurance company
deposits. We have been working closely with the Department of Insurance to go through
the investigative process to determine what course or courses of action needs to be taken
to reduce the potential liabilities to the Special Fund.
9. THE EXTENT TO WHICH CHANGES ARE NECESSARY IN THE LAWS
OF THE AGENCY TO COMPLY WITH THE FACTORS LISTED IN
THIS SUBSECTION
We are unaware of any changes that need to be made.
10. . THE EXTENT TO WHICH THE TERMINATION OF THE AGENCY
WOULD SIGNIFICANTLY HARM THE PUBLIC HEALTH, SAFETY OR
WELFARE
Inasmuch as everything we do is focused on safety, health and welfare of those involved
in or by the laws the legislature has implemented, the impact of terminating the Agency
would be potentially catastrophic to employees, employers, and the general public.
Given that workers compensation is a constitutional requirement the assumption is that if
.the ag~ncy were to be terminated the statutory provisions essential to the program would
remain in place. Therefore, I am answering the question by addressing the consequences
that would result if there were no agency to oversee the workers compensation system.

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